Motorists overcharged by lb1,000 by dealers for loans to buy cars, warns financial watchdog

MORE than half a million people with car finance deals are now being stung by lb1,100 in EXTRA charges by firms attempting to make commission.

The financial watchdog warns that 560,000 customers could be paying a combined lb300million more in interest – or 50 per cent a lot more than they have to.

Its mystery shopping research found that on a typical car loan agreement of lb10,000, higher broker commission left customers paying around lb1,100 more in interest within the four-year term.

The regulator adds that it has seen "widespread use" of brokers setting high customer interest rates in a bid to earn higher commission.

This consequently may also see higher risk customers priced from the market and credit provided to borrowers who can't really afford to make the repayments.

Jonathan Davidson, executive director of supervision – retail and authorisations – at the Financial Conduct Authority (FCA) describes the practice as "unacceptable".

He said: "We discovered that some motor dealers are overcharging unsuspecting customers on the thousand pounds in interest fees to be able to obtain bigger commission payouts for themselves."

"This really is unacceptable and we'll act to address harm brought on by e-commerce model.”

The FCA will consider strengthening existing FCA rules or even banning this type of commission model or limiting broker discretion.

But in the opposite end of the scale, the FCA can also be worried that lenders are wrongly turning down customers who can afford repayments because they're not carrying out proper affordability tests.

The FCA adds that it'll now follow-up with individual firms with such dodgy tactics, although it expects all lenders and brokers to examine their practices.

Amanda Stretton, motoring editor at comparison website Confused.com, said: “Our research found 71 percent of drivers are unclear about car finance options, and murky sales tactics do little to enhance their understanding.

"This past year, we commissioned a mysterious shop across 100 dealerships which found drivers are being pressured into taking out finance there and then, with out the terms of the loans properly told them."

Research authored by car repair firm Kwik Fit found that Brits are paying lb1billion each month on car finance – and the motors cost 47 per cent a lot more than they can afford to buy.

Here's ways to get the best motor finance deal as costs rise by 50 PER CENT in 3 years.

Plus, we explain what hire purchase, 0 per cent finance, PCP and personal leasing are.