Sales Talk : Credit where it’s due

Mike Humble

All motor finance deals under £25.000 are regulated by FSA rules which dealers are legally obliged to show you if asked of them.

The latest news in High Street business regarding Comet electrical stores, reminds us all of just how parlous the world of credit and financing really still is. The availability of credit did a great deal to improve sales and stimulate periods of quiet sales for many years, but my own take on matters related is that credit historically, has simply been far to easy to achieve. Once upon a time, credit or the ‘never never’ method of purchasing was a looked down upon way of purchasing your luxury goods, but today, its almost replacing hard cash at the counter.

During my times on the showroom floor, 90% of the car deals would involve finance or car credit and most manufacturers offer some really tempting deals to make cars for want of a word, affordable. Most of the transactions would go through without fuss, but sometimes you would see a disaster on the horizon in the form of poor credit history and in these cases, I would try to steer the customer away from a finance refusal simply to avoid time wasting or potential embarrassment for the customer or myself – telling a customer that they are not fit to handle a sponge let alone a car loan is never easy.

Even the marketplace for customers with poor credit that normally would never qualify for car credit (known in the trade as black rats or chuckie duffers) could jump behind the wheel of a nearly new Lacetti or a whole raft of other truly dreadful cars thanks to sub-prime lenders – one or two of which have since gone bust. Yes Car Credit being a prime example. As somebody once told me ‘poverty is big business’ and I would often wince at some of the extortionate repayment rates and wonder whether anyone could be so desperate to buy a three year old ex-Motability base model Meriva in 90 day blue for 29.9% APR.

But where I do feel sorry for, is people’s changing circumstances in the real world. I have just come off the blower to a friend in the North for a catch up chat, only to be told he’s hit the skids financially and really struggling with life. Turns out his wife has been replaced in her job as a supervisor for a call centre as her company slashes back operating costs outsourcing some departments to Asia. Their circumstance is compounded by the fact they have three teenage kids – one of which is at Lancaster University and a dog that eats its own body weight in food twice a week.

It transpires that she can simply not afford to keep the repayments going for her tidy little Audi A3, bought at a time where life was good. Though she is working again, her salary is more than half what it used to be and there is no way the repayments can be met for much longer without getting into serious debt. The question I was asked was where do they stand regarding finance payments that can not be met and, would they be liable for repossession should their situation hit a critical level. Well there is good news and bad news, so lets start with the good news;

All motor sales finance transactions which are based on an amount totalling at £25,000 or under, are what is known as a ‘regulated agreement’ under the Financial Services Authority (FSA) rules. With regards to repossession, if you have paid a third or more of the outstanding balance, your car can not be snatched back with a court order being placed upon you. This gives you final chance to get your situation in order if possible and avoid being blacklisted or receiving a County Court Judgement; in layman’s terms, being made bankrupt.

In the event of more than half of the outstanding balance being paid, you can exercise your right to make a ‘voluntary termination’ of the credit agreement. In essence, you can hand the car back to the finance company and so long as the car is in reasonable condition with just fair wear and tear being evident, you pay no more and both the car and the outstanding debt is gone. These two rules are called halves and thirds. What also bears thinking about, is that sometimes the lender will be prepared to re-negotiate the outstanding balance or payments, after all, they don’t want the hassle of collecting and selling on the car.

Now, this is not a get out of jail card by any stretch of the imagination. By opting out of the finance deal, you will certainly scupper any chance of future credit with that particular lender, and may also reduce any chance of credit via any other finance house. Be sure to check this is your last resort before applying your right to walk away from the car, but there again, don’t fall into serious debt over a motor car either. Obviously, don’t just take my word for it, do your research but remember, there is more to life than a shiny new motor on your drive should your personal circumstances dramatically change.  Its all in the small print on your credit agreement.

Exercise your legal rights and do your sums and research to avoid the caring finance debt collector. Its all there in the small print – READ IT!
Mike Humble


  1. I save up and always buy my cars with cash, always have done.

    Almost always I am taken in to see the finance manager to discuss my options. Sorry Mr Finance Manager, don’t want/need your credit. Am I the only one who feels like a leper because “everyone” buys their car with credit?

    It must be the “modern” way then, because I for one will not get in to debt for a car.

  2. Interesting, so no need to abandon the car at Heathrow and make a bolt for it to Brazil?

    I’ve always paid for cars in cash, I’ve not needed much as they have always been cheap and it is surprising just what you can get right now for even a weeks average wage.

  3. Cash man myself,and you no where you stand.Many times i have spoke to people with”buyer remorse” because they have had thier head pickled by finance salemen at showrooms and have signed just to get out the place only to realise they have been done up like a kipper,if you want a car on tick,get a favourable bank loan and pay for it outright,funny i worked at a car supermarket and if you paid cash they only give you a 3 month warranty,but a full year (now two)if you signed your life away with finance,then they badgeredyou to death to buy extra NAC-national auto cover warranty which was the supermarkets in-house product,we called it “nothing at all covered”.

  4. I’m luckily in the same boat as Adrian & Francis. Despite this, dealer’s then try to sign me up for a monthly pre-payment service plan – don’t need that either.

  5. @1totally agree same here i would never entertain finanance, by the time you finish paying for the car its worth next to nothing. only one winner here. buy a classic the value goes up not down….

  6. Okay.. I work in the car industry and would encourage anyone else to buy a new car… it obviously keeps me in a job.. That said.. having to travel to work nearly everyday on an 80 mile round trip, it’s simply back to bangernomics for me. I have kept my leisure car for weekend and road trip use but I have a nice K11 Micra from a mate of mine that gets part-ex’s from a dealership for next nothing (no names.. ahem)- £100 in this case.

    Knowing my circumstances are likely to be rocky (given the fact I am self-employed and do contract work) at the moment I am simply unwilling to commit to borrowing cash from an organisation to get a new (or even a nearly new) car.

    I often wonder why, during the good times, people seem to think they have the right to get the most expensive car that credit can allow with repayments that would cut them to the wire, only to be surprised in the bad times when it all comes crashing down.

    Take the above example. Supervisor in a call centre. Simply put, she should have got a car more within her pay grade and living conditions that would not have been such a burden to pay back, such as a Focus, Astra or a reasonable spec Golf. It doesn’t make sense. The thing is, when getting credit with payments calculated against what you earn, you have to build in an ‘In-case-s**t-happens’ factor – even for the good times, In-case-s**t-happens…..

    If the changes in circumstances are so dramatic (illness or death of the main breadwinner for example) then granted, you can’t really do anything about that as it’s not your fault but it should always be in the back of your mind so that you can at least be confident that you can at least have a better chance of paying back at least half well before any national economic issues arrive.

  7. Ezeee

    The article served to show a legal fact that is seldom known rather than to almost criticise the lady for her choice of car.

    It was well within budget, where the wheels fell off was when her salary / disposable income more than halved with short notice.

  8. I see Audis and bmws all the time with huge ‘Fleet’ stickers across the back. People in the UK drool over the badge “prestige” but its always on some company car scheme / the never-never.

  9. I don’t think there is any need to “feel sorry” for this person, the risks they take are entirely their own.

    The economy has been in recession since (about) March 2008, I work in construction and it was clear before then that the bubble about to burst, thus the “Good times” for most of us ended then, no pay rises, bonuses, or anything else since, that was over 4 years ago.

    Car credit is no different to any other credit, it just allows you to have now what you cannot really afford, and you take a gamble that you will be able to in the future. As with any gamble, sometimes you win sometimes you lose.

    My own belief is that “interest free” car credit is the most dangerous of all, since it can fool the thrifty into thinking they have a good deal but in reality just gives the dealer the chance to up sell and remove bargaining power.

    My ex-mother-in-law recently gave in to Honda pestering over this, and bought a top of the range Jazz at full list on interest free. Did she keep her savings? No. Her husband spent it to replace his “old” 09 reg Mondeo.

    Thus the money they had has been spent twice on 2 rapidly depreciating assets. They are aged 60 and 65 respectively, you would have thought they would have worked it out by now….

  10. I’ve bought cars using all three methods – cash, bank loan and HP – but always been sensible about it. When buying on “the drip”, I’ve always aimed to own 50% of the equity up front to get the interest rate down, and has always been backed up with savings in case things DO go pear shaped further down the line.

    It saddens me that the car loan supermarket sharks still exist (and people are still falling for them) – I remember there was one near where I lived (Concept or Carcraft I think it was…), 12 years ago – they were selling four year old low mileage ex-fleet Mondeos for £8k, over 5 years at an attractive looking £200 a month – until you looked at the small print and saw the APR was an eyewatering 26%, and the total cost plus interest was more like £14k. To think you’d paid all that money, that by the end of the agreement you’d have a near 10 year old repmobile worth about a grand.

  11. I think the worst form of running a car is PCP, fools paradise. However for those who have never experienced hard times then be grateful for how fortunate you have been before lambasting others for not unreasonably spending their highly taxed and hard earned on some luxuries. Four years ago I earned north of £70k, following divorce shortly followed by redundancy from the position of Director i had 18 months of practically no income and now earn less than half my previous salary and keeping the show on the road with a house still in neg eq and other outgoings is difficult. So I empathise with the A3 lady (I too have a dustbin dog) albeit fortunately I do not have the teenager problem. However I have settled to the idea at 55 job progression is now limited, running an 8 year old mega mileage car instead of buying new every year or so (my ex sold cars for JCT 600) and life is not all that bad!

  12. In the USA, as probably in the UK, far too many carmakers and dealers under pressure to move the metal were far too willing to offer low or 0 interest car loans to the good customers in good times and extortinate financing to those with poor credit. The malincentives to offer bad financing for consumers by the carmakers and non-carmaker finance companies are far too attractive the them to reject too many who shouldn’t buy any car.
    Then you have the idiots who have to have a premium brand or model and go for an older and higher risk model instead of a basic car they can be more reliable and can afford. Dealerships, carmakers and finance companies need to face reality that the employment situation for many is going downward for the majority and they cannot afford a car or a newer or fancy one anymore.

  13. When I was recently in the USA, nearly every other advert seemed to be for Toyotas, offering some form of 0% finance…

  14. Mention of Carcraft reminded me of the We Buy Any Car ads, those cringing, patronising ones that are supposed to make you feel they’re the messiah that has come to end your worries about selling your car, and put you in a better bargaining position for your next one, which presumably they will try to sell you through their other outlet. They are complete SHARKS, WBAC is just a trading name of UK Car Group Remarketing which owns Carcraft. They had to change tack as Carcraft managed to get themselves such a bad name.
    They’re all pally in their ads but when it comes to the sale they bully you down from their already insulting offer, try to charge a fee on top for processing, fail to pay on time, fail to pay off finance as agreed. You might as well just give it to them. The cars got to auction usually, but not from WBAC, from UKCGR as if they were dealer p/ex cars. Dealers buy them for what they’d have given YOU for it without WBAC involvement, so just sell it to a dealer and get more.
    I’ve not had dealings with them though I did once “enter my reg number now” for a laugh, it was 2007, I had a decent Jag Sovereign on an M and they came back with 300 quid. I’d advise everyone to steer well clear, but it seems some people are so desparate/stupid that WBAC seem to have no shortage of customers.

    • My brother had an 04 reg Golf for sale – maybe 9 years old at the time. He contacted WBAC, who offered him £450 for it. When they came to collect the car, they revised their offer to £75. He told them to go forth and multiply.

  15. I realise I’m seriously late to the party with my comment, but never-the-less I think it’s worth noting the following:

    In the case of having paid back >50% of the finance balance, Mike correctly indicates that customers have the right under the Consumer Credit Act to terminate the agreement and return the car.

    The point I wish to make is regarding the finance company refusing credit in the future or any other finance house refusing the same. That would imply the customer has been added to some form of blacklist, an action that would be illegal as it is your legal right under the CCA to terminate the agreement providing the conditions for doing so are met. Those conditions are also noted in the finance documentation provided to customers at the time of signing the agreement.

    A finance house would be in hot water were they to be found using an unofficial ‘blacklist’ in this way.

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