Driving prices up...the £1.4bn car loan rip-off
Second-hand dealers’ interest rates three times higher than on internet
SECOND-HAND car dealers are routinely overcharging customers on finance deals in a £1.4billion a year rip-off, a report has claimed.
An undercover investigation has found that the average car finance interest rate offered at dealerships is 9.4 per cent – almost three times higher than the 3.2 per cent available online.
It means that drivers who take out loans at the higher rate are paying up to £1,860 more over three years of repayments on a £10,000 car.
Some 2.3million cars were bought on finance last year, and according to the website Confused.com the additional cost to motorists could be up to £1.4billion a year.
The Daily Mail has also discovered how motorists with poor credit records are being lured by online brokers into taking out high interest loans to buy cars.
Even drivers who have been made bankrupt recently or received county court judgments are being offered car finance.
The worrying findings emerge days after City watchdog the Financial Conduct Authority revealed that it has launched an investigation into ‘irresponsible’ loans for cars and suggested that drivers could soon be made to pass mortgage-style affordability tests before signing up for deals.
Confused.com, the financial services comparison website, commissioned members of the public to carry out a mystery shopping investigation for the Mail into 100 second-hand dealerships.
The identities of the dealerships have been kept anonymous but they included big name independent firms and companies approved by car manufacturers. Customers were asked to find the best rate of finance on a £10,000 vehicle.
This is more than enough to buy a huge range of cars on the second-hand market, including a Mazda3, a Porsche Boxster 387 and a Jaguar XF. It is also more than enough for a new Fiat Panda, Ford Ka, or Hyundai i20.
As well as offering expensive loans, 22 per cent of car dealerships pressured customers to take out car finance in the showroom, according to the investigation.
‘Pushed to take out finance’
Fourteen per cent offered freebies such as a service, a full tank of fuel or car mats to attempt them to take out a loan on the spot.
Amanda Stretton, motoring editor at Confused.com, said: ‘Some drivers are going into dealerships without fully understanding the options and they’re often being pushed to take out finance there and then. Over the course of this mystery shopping experiment, we’ve seen that taking on the wrong deal can cost you thousands, and drivers aren’t always being given a proper explanation of which option they’re signing up to.’
But the costs can be even higher for those with poor credit histories. One firm, MidlandCredit.co.uk, boasts that those with bad records should be able to ‘buy any car you want’ and promises to make a decision on a loan within the hour.
It says it will typically charge those with a poor credit history 36.99 per cent over three years but the actual rate could be much higher. Someone borrowing £10,000 over three years will have to pay back £15,548.50 – with monthly repayments of £431.90. Last night former pensions minister Baroness Altmann said: ‘This beggars belief. It’s really frightening that we seem to be repeating the mistakes which caused the financial crisis.
‘Easy credit is not easy in the long run and causes problems for everyone else. Especially for someone with a bad credit record – it’s irresponsible to encourage them to take on more debt.’
Trade body the Finance & Leasing Association said: ‘The motor finance industry is committed to responsible lending and high standards of customer service. The FLA will continue to work closely with the Financial Conduct Authority to ensure they have a good understanding of this highly competitive and diverse market.’