What is PCP compensation?

Have you purchased your car within the past few years?

The majority of people who buy new or used cars do so on a Personal Contract Purchase (PCP). In exchange for signing the consumer up for a PCP finance deal, the salesperson typically receives a substantial commission. The chances are that your car was purchased on a PCP (Personal Contract Purchase) deal just like 90% of new car deals.

What does that mean for you?

It means that you may be able to claim for PCP Compensation if your car was sold to you at a higher rate of interest than necessary. This was done in order to get the highest possible commission. It could also mean that you were sold a plan that was suspected to be unaffordable for you.  You may be entitled to car finance compensation.

The Financial Conduct Authority (FCA) published a report in March 2019 regarding motor finance. Their conclusion was that over 560,000 customers were paying 50% more on their car finance deals than they needed to be. Naturally, you’ll want to know if you were affected by this underhanded service and what you can do about it. Keep reading to find out.

PCP compensation car key in man's hand Consumer Rights

Have You Had Car Finance?

Check to see if you have a PCP compensation claim.

For more on the technical information surrounding PCP compensation, please read below:

One of the dangers of a PCP contract due to the balloon payment at the end. A PCP deal works by making the cost of the loan equal to the amount the car is expected to depreciate over the course of the contract.

Let’s say a car is initially valued at £20,000 at the beginning of your contract and the dealer expects it to depreciate in value to around £12,000 at the end of the deal, then you will pay the difference over the length of the contract. If you enter into a 2-year PCP deal, then you will pay £8,000 in monthly instalments over that time.

If you then wish to keep the car at the end of your contract, you make a balloon payment. This covers the rest of the cost of the current worth of the car. So, if your car is now worth the expected £12,000, you will pay the extra £4,000 to gain ownership of the car.

Statistics about PCP mis-selling

The following was found from a survey by the Financial Conduct Authority (FCA). The results were established by sending mystery shoppers to 122 car dealerships.

– The FCA has estimate that mis-sold PCP is collectively costing consumers £300 million annually.

– Only 31% of the dealers explained that a customer does not own the car until the final balloon payment is made

– Only 28% of the dealers explained the consequences of missing payments and the total amount payable.

– Of the 122 outlets, only 11 suggested that commission may be added on this form of deal.

PCP compensation Consumer Rights new car in garage

New car in parking spot

So how do I make a claim?

The current belief is that claiming for Car Finance Compensation will be similar to the system for claiming back mis-sold PPI. It will be done under Plevin rules. If over a certain percent of the sale was as commission and this wasn’t explained, you will be entitled to the additional fees plus interest.

The Financial Ombudsman Service (FOS) recommends contacting the business directly first. If the response doesn’t prove to be satisfactory after this point, you can then go to the FOS directly and ask for them to escalate your complaint. If the current buzz is to believed, there could be a reaction similar to that for PPI. That means a great deal of compensation owed to customers and a great deal of money set aside to pay them. Have a look for yourself today.

The FCA’s finding on the PCP mis-selling affair can be found here. Ii you have any other questions please visit us at Customer Rights.

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