Car finance has become an increasingly popular way for people in the UK to purchase new vehicles. However, with the rise in the popularity of car finance, there has also been a rise in high-cost car finance options, which can leave consumers with hefty bills to pay.
High-cost car finance is typically offered to those who have poor credit scores or who are unable to secure traditional car loans. These types of loans come with high-interest rates and often involve extended repayment periods, which can lead to consumers paying much more for their cars than they would have otherwise.
So, why do people opt for high-cost car finance in the UK? For many, it is simply because they are unable to secure traditional car loans due to poor credit scores or lack of credit history. In addition, some people may be attracted to the lower monthly payments offered by PCP agreements, even though they may end up paying more in the long run.
To avoid falling into the trap of high-cost car finance, it is important to shop around and compare different options before making a decision. It is also worth considering improving your credit score before applying for car finance, as this can lead to better loan options and lower interest rates.
PCP
One of the most common types of high-cost car finance in the UK is known as a personal contract purchase (PCP). A PCP is essentially a hire purchase agreement where the consumer pays a deposit upfront and then makes monthly payments over a set period of time. At the end of the agreement, the consumer has the option to either pay a lump sum to purchase the car outright, hand the car back, or use any equity in the car to put towards a new PCP agreement.
The problem with PCP agreements is that they often come with high-interest rates and fees, which can add up to thousands of pounds over the course of the agreement. In addition, consumers are often required to pay a large lump sum at the end of the agreement if they wish to keep the car, which can be difficult for many people to afford.
This has led to an increase in borrowers getting refunds for unaffordable lending. If the loan was unaffordable, the borrowers can make a PCP claim.
Moneybarn
One company that has been in the spotlight in recent years is Moneybarn, which offers car finance to those who are unable to get loans from traditional lenders. However, their high-interest rates and fees have come under scrutiny, leading many to question whether Moneybarn is a good choice for those looking for car finance.
Moneybarn is a specialist car finance lender that provides loans to people with poor credit histories. The company offers a range of products, including hire purchase agreements and personal contract purchase agreements. However, their loans often come with high-interest rates and fees, which can add up to thousands of pounds over the course of the agreement.
The Financial Conduct Authority (FCA) has been investigating Moneybarn’s practices, and in 2020, the company was ordered to pay out £30 million in compensation to customers who were unfairly treated. The FCA found that Moneybarn had failed to properly assess customers’ ability to repay their loans, and had charged excessive interest rates and fees.
While Moneybarn has since changed its lending practices, the case highlights the risks of high-cost car finance. Many consumers who opt for these types of loans may not fully understand the terms and conditions, or the risks involved. This can lead to them falling into debt and struggling to repay their loans.
To avoid falling into the trap of high-cost car finance, it is important to carefully consider all options and shop around before making a decision. It is also worth improving your credit score before applying for car finance, as this can lead to better loan options and lower interest rates.
As mentioned earlier, like with all PCP lenders, if the loan was unaffordable, then the borrower can make a claim against Moneybarn.
Alternatives
If you are looking for alternatives to high-cost car finance in the UK, there are several options available. Not all of these will be possible for everyone. However, they are worth investigating as it could save you from extremely expensive interest charges.
Improve your credit score
One of the best ways to secure a more affordable car loan is to improve your credit score. This can be done by paying off debts on time, keeping credit card balances low, and ensuring that there are no errors on your credit report. By improving your credit score, you may be able to qualify for a traditional car loan with a lower interest rate.
Look for 0% finance deals
Some car manufacturers offer 0% finance deals on new cars. These deals can be a good option if you have a good credit score and can afford the monthly payments. However, it is important to read the terms and conditions carefully, as there may be hidden fees or charges.
Use a credit union
Credit unions offer loans at lower interest rates than traditional lenders. If you are a member of a credit union, you may be able to secure a car loan at a lower rate than you would be able to get from a high-cost car finance lender.
Consider a personal loan
If you have a good credit score, you may be able to secure a personal loan at a lower interest rate than a high-cost car finance loan. Personal loans can be used to purchase a car, and they may come with more favourable terms than a high-cost car finance loan.
Save up for a down payment
If you are unable to secure a car loan at a reasonable rate, consider saving up for a down payment. By putting down a larger amount of money upfront, you may be able to secure a traditional car loan with a lower interest rate.
There are several alternatives to high-cost car finance in the UK. By improving your credit score, looking for 0% finance deals, using a credit union, considering a personal loan, or saving up for a down payment, you may be able to secure a more affordable car loan. It is important to carefully consider all options and shop around before making a decision, and to avoid taking on debt that you cannot afford to repay.
Conclusion
High-cost car finance in the UK, including that offered by Moneybarn, can come with high-interest rates and fees that can lead to consumers paying much more than they would have otherwise. It is important to carefully consider all options and shop around before making a decision, and to avoid taking on debt that you cannot afford to repay. By doing so, you can ensure that you are able to enjoy your new car without the burden of high-interest rates and fees.
Using the wrong provider leads to much higher costs. This can leave customers with hefty bills to pay. It is important to carefully consider all options and shop around before making a decision, and to avoid taking on debt that you cannot afford to repay. By doing so, you can ensure that you are able to enjoy your new car without the burden of high-interest rates and fees.