Totallymoney.com research has revealed how much customers could save by avoiding finance options at car dealerships with £300 million being lost every year across the UK due to commission-focused dealerships
The research showed that the majority of new car registrations (nine in ten) were financed through dealerships in 2018 with nearly three-quarters of people (68%) accepting the first car finance deal offered to them at a dealership
Further analysis showed that customers could be paying an unnecessary £1,100 extra in interest over a four-year loan.
Figures from 2018-19 report the majority of people buying a car (91%) were persuaded by car dealerships into taking out credit to help them with their purchase.
Research by the FCA found that buyers are typically sold a finance product based on a broker’s commission, rather than the customer’s creditworthiness. Dealerships receive their commission from lenders based on the interest rate a customer gets, therefore incentivising the broker to increase the rate to earn more. This often results in customers getting a car finance deal that costs them more than they need to pay.
As a result, the FCA estimates that a customer could end up paying an extra £1,100 in interest on a four-year £10,000 finance agreement.
In light of their findings, the FCA has now put the brakes on these practices in the car finance market. Commencing in January 2021, discretionary commission models that are not in the customer’s best interests are banned.
Alastair Douglas, CEO of finance experts TotallyMoney said “A car is often a lifelong necessity and a large portion of someone’s monthly expenses. This is particularly important at the moment, as more people may be keen to avoid public transport amid the coronavirus crisis.”
“But, car dealerships can sometimes seem unfair. The industry currently lacks competition, and at the point of sale the main focus is on the broker’s commission, rather than what is right for the customer.”
“We wanted to change this. Our new car finance eligibility platform brings in creditworthiness as a top priority, so customers can get finance options that are right for their situation. We work closely with our lenders, so that customers see market-leading products that will work for them.”
“At TotallyMoney, we’re on a mission to improve the UK’s credit score and help our customers move on up to a better financial future. Checking your free credit report to better understand your financial situation could help you improve your credit rating, and help you find the best deals for your next car.”