A mystery shop of car dealerships across the North West has revealed widespread confusion about car finance, stemming from a lack of transparency and inconsistent sales practices.
The research by Confused.com comes ahead of the results of an investigation by the Financial Conduct Authority (FCA) into the growing motor finance sector, which will review potential for consumer harm (due in September 2018)(2).
As part of the mystery shop, undercover buyers visited 10 dealerships up and down the region. The shoppers were instructed to enquire about buying a second-hand car valued at £10,000 and to ask about the car finance options available for funding the purchase.
After visiting a dealership and finding a car within the budget, it seems some shoppers were prevented from getting the best bang for their buck. A tenth (10%) said the dealer came across as ‘pushy’, while a further one in two (50%) said they did not make them aware of restrictions, such as mileage caps and balloon payments that are associated with Personal Contract Purchase (PCP).
Worryingly, some even found the paperwork confusing, with a fifth (20%) shoppers admitting they did not feel fully informed after reading the terms and conditions of the policy handed to them by the dealer.
And it seems this lack of transparency has led to drivers being misinformed. Almost a tenth (9%) of UK drivers are under the impression you must take out car finance with the dealership you buy the car from. This is despite the fact that drivers could save more than £1,000 by comparing finance options online (hire purchase)(3).
Worryingly, some drivers in the North West have already been stung by inflated deals, with almost one in 10 (9%) who have purchased a car using finance admitting they have struggled to meet monthly payments(4). With clearer information from dealers on the different payment options available, perhaps fewer drivers would find themselves in this situation.
However, it isn’t just drivers in the North West who’ve been on the receiving end of a confusing car finance sale. The UK-wide investigation reveals one in 10 (10%) dealers across the county refused to let shoppers get a better car finance deal elsewhere. Many shoppers also reported a lack of ‘clear and transparent’ information when they were enquiring about buying a car, which is one of the key areas that the FCA is reviewing.
In the majority of dealerships across the UK there seemed to be little clarity about the actual cost of the full loan, with just one in three (34%) dealers relaying the loan rate (APR) to shoppers spontaneously. Furthermore, many who took part in the UK-wide mystery shop left the dealership without being informed that they may not qualify for the advertised or ‘representative’ loan rate and that they could end up paying more. In fact, more than half (54%) of dealers did not explain the APR could be higher following a credit check. Given that many drivers are finding that the terms of these loans are not being clearly explained, it is perhaps little wonder further research found one in 10 (10%) UK drivers have struggled to meet their monthly car finance payments(4).
There also seemed to be some variation when comparing main and independent dealerships, too. Of those shoppers who felt they were being pressured into a sale, those who visited independent dealerships were more likely to report this sort of pushy behaviour compared to main dealerships (59% vs 41%).
In fact, main dealerships were also more likely to make buyers aware of restrictions such as mileage caps and balloon payments (59% vs 42%) and buyers felt less informed after reading the paperwork at independent dealerships (55% vs 45%).
Amanda Stretton, motoring editor at Confused.com, says:
“Drivers in the North West need to feel empowered that they are going to get the best deal when they walk into a dealership. If drivers are not being told they may be able to get a better rate elsewhere then they could end up spending more than £1,000(3) than they would if they compared car finance online (hire purchase).
“Car finance is fundamentally confusing and far greater clarity is needed. Some drivers are landed with finance plans they don’t understand and are even struggling to meet payments as a result. It’s crucial drivers have clear and transparent information about all of the finance options available to them when buying a car. That’s why we’ve launched a guide helping drivers to weigh up the pros and cons of the different finance options available.
“We want to put the power back into the hands of drivers, so our car finance comparison service weighs up the different options side-by-side giving sight of the exact rate drivers will pay for the loan. This way drivers can be sure they have landed a great deal and put the money they could save on interest payments to better use.”