If you've taken out a Hire Purchase (HP) agreement to finance your car, you might be wondering if you were mis-sold. HP is a popular type of car finance in the UK, but it's not always sold responsibly. The Financial Conduct Authority (FCA) has found widespread evidence of mis-selling in the motor finance industry, including HP and other types of UK car finance agreements like Personal Contract Purchase (PCP finance deal) and Personal Contract Hire (PCH).
In this guide, we'll explain what mis-sold HP car finance looks like, how to know if you're affected, and what you can do to claim compensation with the help of our experienced team at Claim For My Car.
What is Hire Purchase (HP) Car Finance?
Before we dive into mis-selling, let's clarify what HP car finance is. With a Hire Purchase agreement, you typically:
- Pay a deposit (often around 10% of the car's value)
- Make fixed monthly payments over an agreed term (usually 2-5 years)
- Have the option to purchase the car at the end of the term for a small fee
Throughout the financial agreement, the finance company owns the car. You're essentially hiring it with the intention to buy. This differs from PCP, where you have the choice to return the car or pay a larger "balloon payment" at the end, and PCH (also known as car leasing), where you simply rent the vehicle for a set period without the option to buy.
HP is one of the most common types of car finance agreements in the UK, alongside PCP. According to a recent article by the FCA, around 9 out of 10 new cars in the UK are sold on finance, with HP and PCP accounting for the majority of these deals.
How is HP Car Finance Mis-Sold?
Mis-selling happens when the lender or car dealership fails to act in your best interests. The FCA has uncovered evidence of widespread mis-selling in the motor finance industry, often due to irresponsible lending practices and discretionary commission arrangements.
Some examples of how HP finance might be mis-sold include:
- Failing to properly assess your ability to afford the monthly repayments
- Not clearly explaining the total cost of the agreement, including interest rates and fees
- Pressuring you into signing without giving you extra time to read and understand the terms
- Selling you add-on products (like GAP insurance) that aren't suitable for your needs
- Misrepresenting the car's condition, mileage, or history
In many cases, mis-selling occurs because of discretionary commission arrangements between lenders and car dealerships. These arrangements incentivise salespeople to push customers towards more expensive finance deals, as they can earn higher commissions by charging higher interest rates.
The FCA Investigation estimates that these commission models have cost UK consumers £300 million per year in extra interest charges. In light of these findings, the regulator has banned discretionary commission arrangements in the motor finance market as of January 2021.
If any of these mis-selling scenarios sound familiar, your HP finance deal may have been mis-sold, and you could be owed significant compensation.
Signs You May Have a Mis-Sold HP Car Finance Claim
Still not sure if you've been mis-sold? Here are some key indicators to watch out for:
- The monthly payments are higher than you were initially told due to an increase in higher rate of APR%
- You weren't given a clear explanation of the total amount payable over the finance term on the car loan
- The car dealer rushed you into signing the agreement without the extra time to review it properly
- You weren't asked about your income, expenditure, or credit history to assess affordability
- The car has turned out to be worth significantly less than you paid, or has hidden problems
- You've struggled to make the repayments from the start, causing financial difficulty
How Much Compensation Can You Claim for Mis-Sold HP Car Finance Options?
The amount of compensation you could receive for a mis-sold HP agreement depends on your individual circumstances. Factors that will be considered include:
- The total amount you've paid in interest and fees over the term of the agreement
- Any negative impact on your credit score from unaffordable repayments
- The difference in cost between your HP deal and a fairer, more suitable alternative
- Stress, inconvenience, and hardship caused by the mis-selling and any subsequent financial difficulties
Compensation amounts can vary widely, from hundreds to tens of thousands of pounds. In 2022, the average mis-sold HP car finance claim pay out was around £5,500, but some claimants have received significantly more.
How to Make a Mis-Sold HP Car Finance Claim
Think you might have a claim? Here are the key steps to take:
1. Gather Your Evidence
Start by collecting all the relevant paperwork, such as:
- Your HP agreement, terms & conditions, and any other finance documents
- Correspondence with the lender or dealership, including emails and letters
- Proof of payments, such as bank statements or receipts
- Any evidence of affordability checks (or lack thereof) carried out by the lender
- Documentation of any problems with the car or issues with the sale process
The more evidence you have to support your case, the stronger your mis-sold HP claim will be.
2. Submit a Complaint to the Lender
Next, you need to make a formal complaint to the finance provider. Write to them (by email or letter), detailing:
- Why you believe your HP finance was mis-sold, with reference to specific examples
- The evidence you have to support your claim, such as the documentation gathered in step 1
- What you want them to do to put things right, e.g., refund interest paid or compensate for losses
Give the lender up to 8 weeks to investigate your complaint and provide a final response. They have a legal obligation to respond to your complaint within this timeframe.
3. Escalate to the Financial Ombudsman Service (FOS)
If the finance company rejects your complaint or fails to respond satisfactorily within the 8-week deadline, you can escalate your case to the Financial Ombudsman Service (FOS).
The FOS is an independent body that settles disputes between consumers and financial services businesses, including car finance providers. They'll review your complaint and decide if mis-selling occurred. If they agree with your case, they can order the lender to pay you compensation.
To escalate to the FOS, you'll need to fill in their online complaint form and provide details of your case, including copies of any correspondence with the lender. The FOS will then investigate and provide a decision, usually within 3-6 months.
4. Consider Legal Action
If your claim is rejected by the FOS, or if you're not happy with their decision, your final option is to consider legal action against the lender.
However, taking a mis-sold HP claim to court can be expensive and time-consuming. It's crucial to get advice from a solicitor who specialises in mis-sold car finance claims, such as our legal partners at Claim For My Car, before deciding to proceed with legal action.
Most mis-sold HP claims are settled without needing to go to court, either directly with the lender or via the FOS. Working with a reputable claims management company like Claim For My Car can help you navigate the claims process effectively and ensure the best chance of success.
Claim Your Mis-Sold HP Car Finance Compensation Today
If you think you've been mis-sold HP car finance, don't wait to take action. You could be owed thousands of pounds in compensation, and our experienced claims team at Claim For My Car is here to help you get it.
As leading experts in mis-sold car finance claims, we've helped countless clients successfully claim compensation for mis-sold HP, PCP, and other types of finance agreements. We know exactly what to look for in mis-selling cases and how to build strong claims that get results.
Get in touch today for a free, no-obligation assessment of your mis-sold HP claim. We'll review your case, gather the necessary evidence, and deal with the lender on your behalf, fighting for the maximum compensation possible. And with our no-win, no-fee service, there's no risk or upfront cost to you.
Don't let irresponsible lenders and dealerships get away with mis-selling. Start your mis-sold HP claim with Claim For My Car today and get one step closer to the compensation you deserve.
Mis-Sold HP Car Finance FAQs
What is the deadline for making a mis-sold HP car finance claim?
In general, you have 6 years from the date of the HP agreement (or 3 years from when you discovered the mis-selling) to make a claim. However, it's best to act as soon as possible while the evidence is still readily available.
Can I claim if I've already paid off the HP agreement?
Yes, you can still claim compensation for a mis-sold HP deal even if you've finished making payments. The key factor is whether you were mis-sold the finance in the first place, not your current status.
Will claiming for mis-sold HP affect my credit score?
No, making a mis-selling complaint will not impact your credit rating. Claims and their outcomes are not recorded on your credit file, so your score will not be affected.
Can I claim if I defaulted on the HP agreement?
Yes, you can still make a mis-sold HP claim if you've missed payments or defaulted on the agreement. In fact, unaffordable repayments are a common sign of mis-selling and could strengthen your case.
Can I claim if I voluntarily terminated the HP agreement?
Yes, you can claim even if you voluntarily terminated the HP agreement early. Terminating due to financial difficulties could actually support your mis-selling claim, as it suggests the finance was unaffordable from the start.
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