Car finance and lease deals can be confusing to understand
Car lease deals and finance offers are becoming more popular in the UK as the cost of owning a car increases.
One reason lease deals are an attractive prospect for drivers is that they can be purchased for just a few hundreds pounds a month and the driver will not lose money due to depreciation.
In addition to this, the reassurance that these cars are less likely to go wrong is a plus point and not having the hassle of trying to sell it at the end of the contract.
It is also an affordable way to drive a brand new car which has the latest safety and connectivity tech and can also be a status symbol.
Finance contracts such as Personal Contract Purchase (PCP) and Personal Contract Hire (PCH) are expected to account for almost 90 per cent of new car sales in the UK.
However, a recent survey conducted by leading online automotive shopping platform, CarGurus, found that a staggering 47 per cent of drivers with a car on finance admitted that they could not specify how much they had effectively borrowed to fund the vehicle.
A further 63 per cent of drivers with cars on finance also were aware they had a mileage restriction but were unsure of what it was.
Exceeding milage restrictions can result in you paying added fees to cover the mileage, which are usually extortionate.
In fact, over half (54 per cent) of these drivers were not able to state what the penalty charges were for exceeding mileage limits.
Drivers exude confidence, with 91 per cent of vehicle owners with car finance believing that they understand how finance deals work, however, when questioned about car finance in more detail it is apparent that there is a fundamental lack of understanding.
These statistics coincide with growing concern in the industry about the levels of car finance being sold and the lack of consumer understanding about the agreements they are signing.
Car finance can be quite complex
James Drake, Spokesperson for CarGurus said: “Car finance can be quite complex and when CarGurus commissioned this research, we expected to find some level of consumer misunderstanding.
“What we’ve discovered goes far beyond misunderstanding and clearly needs to be addressed.
“The fact that 47% of drivers with a car on finance couldn’t tell us what they had effectively borrowed is mind boggling.
“Car finance is a valuable tool, but consumers need to take more time to understand and educate themselves, as well as making sure that they only deal with reputable dealers who take the time to explain finance products properly.”
“To write off car finance completely is almost as financially naïve as not knowing how much you have borrowed.
A large proportion of drivers admit to being unaware of what the repayments are
“Buying a car outright can be costly and a well-structured finance deal can protect consumers from depreciation and make high value cars more affordable.
“As ever, our advice is that going through the right dealer is essential. A professional dealer will always explain finance products clearly and concisely to help the customer make the right choice.
“Ultimately, some buyers may just prefer not to use finance products, but we think it would be short sighted to disregard them on principal, especially when you consider that they could represent a more cost-effective solution in some circumstances.
A recent study suggested that a large proportion of drivers are struggling to afford their car’s finance deal after being confused by the policy in the first place.
According to RAC Flexion research, 72 per cent of drivers opt for the first policy they are offered and 10 per cent believe that they are not in complete control of the repayments.
A third admitted that they felt they have little control over how much deposit they paid, the scale of their optional final payment or size of their monthly payments.
In a bid to afford these deals almost half (45 per cent) ion drivers have admitted to having to cut back on other bills to afford the repayments.
A further 12 per cent of drivers said they were forced to hand back their car because they could not afford the payments which result in them paying a penalty charge.
RAC Flexiloan spokesman Alastair Crossley said: “We saw an opportunity to provide those looking for their next car with a radically different offering and one that puts them in complete control from beginning to end.
“Flexiloan gives buyers the flexibility which schemes like PCP offer, but then offers so much more: buyers can choose to buy any car that is at least two years old and can arrange their finance securely online, meaning there is no need for awkward conversations with pushy sales agents.
“Just as the RAC has innovated to help its members at the roadside – such as being the first breakdown company to provide drivers with a universal spare wheel if their car doesn’t have one in the boot – we are now determined to do the same when it comes to finance.”
Drivers are being encouraged then to get advice on what they can afford and a proper breakdown of the payments, to ensure they aren’t out of pocket.