A mystery shop of car dealerships has revealed there is nation-wide consumer 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 a review by the Financial Conduct Authority into the growing motor finance sector, which will review potential for consumer harm, due in September 2018.
|The large-scale mystery shop saw undercover buyers visit 100 dealerships up and down the country. 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.||The independent Money Advice Service has a very good guide:|
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.
One in 10 (10%) said the dealer refused to let them seek out a better car finance deal elsewhere. This is despite drivers being able to save over £1,000 by comparing car finance online (hire purchase). In fact, one in six (17%) said they felt ‘pushed’ into taking out car finance there and then.
|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. Three in five (59%) shoppers were not made aware of restrictions, such as mileage and balloon payments.|
This is particularly worrying given that further research reveals one in eight (12%) UK drivers who have taken out car finance have been stung by a balloon payment at the end of the term of the loan4, with one in 20 (5%) having been charged for going over their mileage limits.
And one in five (20%) shoppers also revealed they did not feel fully informed after reading the terms and conditions of the policy handed to them by the dealer.
|In Wales, almost a third (30%) of shoppers felt the dealer was ‘pushy’ in a mystery shop of car dealerships in Wales.|
Only half (50%) of the dealers made shoppers aware of restrictions, such as mileage and balloon payments.
A tenth (10%) of shoppers came away feeling uninformed after reading the paperwork.
More than a tenth (11%) of drivers in Wales who have bought a car using finance admit struggling to meet monthly payments.
In the majority of dealerships 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 shoppers 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%) drivers have struggled to meet their monthly car finance payments4.
There 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 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%).
Buyer experience at main dealerships & independents
|Total||Main dealerships||Independent dealerships|
|Felt pressured into a sale||17%||41%||59%|
|Felt less informed after reading the paperwork||20%||45%||55%|
|Made aware of restrictions||41%||59%||42%|
While the nation awaits the FCA’s findings, it seems many drivers feel they would benefit from receiving greater clarity at the point of taking out car finance. One in three (35%) drivers say more needs to be done to educate people about car finance. So Confused.com has launched a definitive ‘Car Finance Explained’ guide for drivers to find out the pros and cons of the different options available.
However, some put the onus on the people selling the vehicles to communicate the terms of the sale in a more clear and transparent way. For example, one in four (24%) drivers say car sales people should be given better training if they are responsible for selling cars using finance, while one in three (34%) think it should be compulsory for dealers to explain that the finance for a vehicle can be obtained elsewhere.
The research concludes that there is wide-spread confusion about car finance – a worrying prospect given it’s a market that has almost doubled since 2008, with 2.3 million consumer motor finance agreements in 2017. But education and awareness will go some way towards improving consumer experience.