Did You Buy a Car on Unaffordable Finance?
Were you handed the keys to your new car, only to find the finance unaffordable from the start?
According to the Financial Conduct Authority (FCA), which regulates car finance lenders, and the Financial Ombudsman Service (FOS):
- A loan is deemed affordable only if you can make the payments on time without experiencing financial hardship, while still meeting your other commitments.
- This means being able to pay all other debts, household bills, and living expenses in addition to the car loan repayments.
If you prioritized your car finance to avoid repossession, you might have accumulated credit card debt, taken out additional loans, or fallen behind on bills. Even if you managed to keep up with the payments, the finance may still not have been truly “affordable.”
Key Considerations
1. Affordability Checks
Lenders are required to assess whether you could reasonably afford the car finance. This involves more than just checking your credit record—it also includes evaluating your income and expenses.
The checks must be “proportionate.” For instance:
- If you have a strong credit record and a high income, borrowing a small amount may not require extensive scrutiny.
- However, for those with poor credit or loans representing a large portion of their income, stricter checks are necessary.
Examples of proper checks include:
- Reviewing your credit record to see existing debt payments.
- Comparing your expense claims with national averages (e.g., unrealistic amounts like £60 per month on food).
- Verifying income through payslips or bank statements.
Unfortunately, many lenders fail to perform adequate checks. In 2019, the FCA raised concerns, noting that some lenders focused more on their own risk than on the borrower’s affordability.
2. When Affordability Becomes an Issue
Affordability is based on your financial situation when the loan was taken. If you experienced financial difficulties later due to unforeseen circumstances (e.g., job loss, rising bills), the lender is not at fault. However, if the lender failed to assess affordability properly at the start, you may have grounds for a complaint.
Making a Car Finance Affordability Complaint
If you believe your car finance was unaffordable from the outset, follow these steps:
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Submit a Complaint to the Lender:
Use an affordability complaint letter (such as the template in the article How to Ask for a Refund from Large, Bad Credit Loans). Your complaint should request:- A refund of the interest paid.
- Repayment of the balance at an affordable rate.
- Removal of any negative marks on your credit record.
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Escalate to the Financial Ombudsman Service (FOS):
Many lenders initially reject complaints, even valid ones. If this happens, you can escalate your case to the FOS, which will review it independently.
What Happens If You Win?
The outcome depends on your situation:
- If the car finance is ongoing: Your balance may be reduced, and interest refunded.
- If the car was repossessed: Outcomes vary depending on how much you paid and other factors.
For more details, refer to Car Finance Affordability – What You Get If You Win a Complaint.
Other Types of Claims
Car Finance Commission Complaints
In January 2024, two major cases highlighted that some lenders charged excessively high interest rates to increase car dealer commissions. If this applies to you, consider making a claim (Car Finance Commission Scandal – Can You Get a Refund?).
Dieselgate Claims
If you bought a diesel car that produced higher emissions than advertised, you might be eligible for compensation. However, this type of claim typically requires legal assistance, and payouts can take a long time (MSE: Dieselgate Claims).
Important Notes
- While your affordability complaint is being processed, you must continue making payments to avoid repossession.
- Carefully assess your situation before pursuing a claim, as outcomes vary depending on individual circumstances.
