Watchdog calls for freeze on UK PCP and PCH car finance repayments

Financial Conduct Authority recommends three-month PCP and PCH payment freeze for “customers who are having temporary difficulties” due to coronavirus

Car finance lenders should provide a three-month payment freeze to motorists experiencing difficulties meeting their monthly PCP and leasing repayments due to coronavirus-related issues, the UK’s financial watchdog has said.

The Financial Conduct Authority (FCA) warns that automotive finance houses “should not take steps to end the agreement or repossess the vehicle” if customers are having difficulties making monthly payments due to reduced incomes, unemployment, or health issues brought about by coronavirus.

The FCA also warns finance companies against changing contracts “in a way that is unfair”, such as readjusting monthly repayments for PCP (personal contract purchase) deals based on falling used car values. With PCP deals based around a car’s projected depreciation over the length of the deal, and used-car values falling as sales are significantly reduced during the COVID-19 pandemic, the expected value of cars that are subject to a PCP deal could fall significantly, with the FCA warning monthly repayments should not be adjusted to reflect this.

More recommendations concern customers at or near the end of their PCP deals. People in this situation would normally be offered three options: make the final ‘balloon’ repayment and own the vehicle outright; walk away from the deal owing nothing; or use any overpayments accrued as a result of the car depreciating less than predicted (often referred to as ‘equity’) to go towards the deposit on a new car, and a new PCP deal. 

This third option, of rolling equity into a new deal, is by far the most popular one for those taking out a PCP deal (who make up the majority of new-car buyers), but with dealerships up and down the country forced to close, this is difficult, if not impossible. 

The FCA has previously told drivers whose contracts are about to come to an end to contact their lenders and discuss what they would like to do, and is now advising finance houses: “Where a customer wishes to keep their vehicle at the end of their PCP agreement, but does not have the cash to cover the balloon payment due to coronavirus-related financial difficulties, firms should work with the customer to find an appropriate solution.”

Do you think this is a good idea? Let us know your thoughts in the comments below...

Recommended

Covid-19: what it means for motorists and the car industry
News

Covid-19: what it means for motorists and the car industry

Everything you need to know about how Covid-19 affects cars, motorists and the car industry in the UK
5 Jan 2021
Current car usage at similar levels to May 2020 despite lockdown
Traffic
News

Current car usage at similar levels to May 2020 despite lockdown

New data suggests 10 per cent more cars are being used in the UK now than during the first lockdown in March 2020
13 Jan 2021
Volvo XC40 Recharge T5 R-Design: long-term test review
Volvo XC40 Recharge T5 long termer - final report header
Volvo XC40

Volvo XC40 Recharge T5 R-Design: long-term test review

Final report: Our plug-in Volvo XC40 Recharge T5 has proved a useful step on the way to full electrification
13 Jan 2021
MG and Tesla were the only car makers to increase sales last year
Tesla Model 3 - Front Tracking
News

MG and Tesla were the only car makers to increase sales last year

New-car registrations hit a 30-year low in 2020, but two manufacturers managed to buck the trend
6 Jan 2021

Most Popular

BMW, Mercedes and Tesla owners could be at risk of higher insurance premiums
bmw x5 m50d tracking front
News

BMW, Mercedes and Tesla owners could be at risk of higher insurance premiums

Raw, uncapped insurance group rating data could be used by insurers to increase premiums on various high-end cars
19 Jan 2021
New 2021 Mercedes EQA electric crossover arrives with 302-mile range
Mercedes EQA - front
Mercedes EQA

New 2021 Mercedes EQA electric crossover arrives with 302-mile range

The new Mercedes EQA is a premium rival for the Volkswagen ID.3 and Kia e-Niro, with a maximum claimed range of 302 miles
20 Jan 2021
Best electric cars to buy 2021
Electric cars

Best electric cars to buy 2021

There are more electric cars than ever to choose from, so we've picked some of the best you can buy in the UK now
4 Jan 2021