Play the “smart card” when buying a new car or bike and protect yourself from losing everything if a dealer goes bust or the vehicle is not what you expected.
That’s the advice from the National Association of Commercial Finance Brokers.
Many buyers go for personal loans or pay entirely in cash but while that may appear cheaper you could lose out.
If you pay just a £1 of the price with a credit card you get full protection from risks, even if you pay the balance with a personal loan or in cash.
The National Association of Commercial Finance Brokers has urged car and motorcycle buyers to purchase in such a way that they receive the maximum consumer rights and protection possible, rather than — as is often advised — simply go for the cheapest loan rate out there.
“Few car and motorcycle buyers are aware that they can be throwing away up to 50% of their legal rights by taking out a personal loan or by paying the whole amount with cash, and this can cost them dearly further down the line,” warned Graham Hill, NACFB board member and car finance expert.
Graham’s top tips for anyone buying a car or motorcycle for the summer ahead:
Tip 1. If you’re buying a car outright for cash, possibly a lump sum released from your pension pot, be sure to pay a small amount, even as little as £1, on your credit card. This immediately provides you with protection under Section 75 of the Consumer Credit Act, which covers any credit transaction between £100 and £30,000. For example, let’s say you place a deposit of £100 on a car costing £20,000 with your credit card, followed by £19,900 of cash while the dealer carries out the necessary work, but that dealer subsequently goes bust before your car is delivered. In that scenario you can recover the full £20,000 from the credit card company. Note, too, that the credit card company is also liable if the car is not as described, not fit for purpose or faulty and the dealer doesn’t satisfactorily repair it.
Tip 2. Consider hire purchase (HP) or a personal contract plan (PCP), even if the rates aren’t as competitive as you can get through certain personal loan providers. The reason for this is that, if there is a fault with your car or motorcycle, if you are in an HP or PCP agreement, the finance provider is jointly and severally liable, which in very basic terms means it is equally responsible to fix the problem — and even agree to a full refund of all payments made. This can add tremendously to your legal position, as while dealers may decide to take on an individual consumer, they are considerably less likely to take on the finance company, which will almost certainly side with the customer. Also, why would dealers risk ruining the relationship with the very company that finances their vehicles?
Tip 3. Remember your right to so-called ‘Voluntary Termination’. Few people know this but hire purchase and PCP agreements allow you to hand the car back to the finance company once 50% of their total cost (including interest and charges) has been repaid. Voluntary Termination (VT) is covered under Sections 99 and 100 of the Consumer Credit Act and is again applicable on transactions between £100 and £30,000. So, for example, if the total cost of your car is £10,000, once you have paid £5,000 you can hand the car back even if the car is worth substantially less than what you would have to pay as a settlement figure. Not only could you be in pocket but you could also preserve your credit score, too, since while Voluntary Termination (VT) will appear on your credit file, it will have little or no effect on your ability to take out finance in future. To minimise the damage caused to your credit, speak to the finance company and hand the car back rather than run into arrears or default.
Tip 4. Be sure to get the Financial Ombudsman Service (FOS) behind you. Buy a car for outright cash or a personal loan and you’ll have no recourse to the FOS if the car has a fundamental fault with it. Use your credit card, even for as little as £1, or enter into a hire purchase or PCP agreement and the FOS will be there to help you resolve disputes you may have with the dealer. It goes without saying that they tend to be most sympathetic towards consumers.
Tip 5. Until recently, the Financial Ombudsman Service would not deal with complaints made by small business owners against other companies, only complaints made by consumers. But a change to European law means it will now take on complaints made by a ‘Micro Enterprise’, defined by the EU as a small business with a turnover or balance sheet worth of less than 2 million Euros and less than 10 employees. So again, if buying a car privately for business purposes, always pay at least a tiny fraction of the bill with a credit card, or consider an option such as hire purchase.