Car finance under fire: What you need to know before signing on the dotted line

Brits are being warned about the complexities of purchasing a car on finance, after a watchdog revealed that millions of drivers could be entitled to compensation.

An investigation into car finance mis-selling by the Financial Conduct Authority (FCA) found that some customers may have been overcharged on loans taken before January 2021.

Car finance allows drivers to spread the cost of purchasing a vehicle into monthly payments, instead of paying it all upfront in one go.

Today, 80-90% of cars are being purchased through finance agreements – making up a staggering two million cars per year so it’s important motorists are aware of the red flags to avoid, potential hidden fees and the Ts and Cs they are signing up to.

Car insurance experts from Quotezone.co.uk are providing some useful tips to help give young motorists or those buying a car for the first time, a better understanding of what to look out for when purchasing a car on finance.

It’s crucial that motorists check out any hidden costs and fine print which may catch them out. Lenders may attempt to upsell additional products, so it’s important for drivers to consider what will be beneficial for them.

Taking out finance that doesn’t align with the driver’s personal financial situation could negatively impact their credit score – it’s always essential to make sure the repayments are affordable.

The contract length is also an important factor to consider, as while monthly repayments may be low, the accumulation of interest could increase the overall loan cost.

Greg Wilson, car finance expert and CEO at Quotezone.co.uk has highlighted the importance of carefully reviewing the details of car finance deals moving forward.

He said: “In January 2021, following concerns that brokers’ earnings were linked to the interest rates charged to customers, FCA introduced new rules regarding car finance.

“The flaws in the previous rules led to higher finance costs for consumers and created a potential conflict of interest.

“It is vital that drivers choose the right plan to suit their individual circumstances. We wanted to help young drivers and those looking to buy a car for the first time by researching the common pitfalls to look out for when signing up to a car finance agreement.

“Choosing the right plan can be tricky and if drivers are in any doubt what’s best for their situation, they should seek advice from a financial expert.

“Car finance can help drivers improve their credit score, building a credit record and demonstrating responsibility to banks and lenders when payments are met on time each month.  It also gives drivers more manageable monthly payments and the option to purchase a newer car, which is potentially easier to maintain and is less likely to need repairs.”