Car finance: Expert explains different ways to buy a car
In November the FCA extended support for those on consumer credit agreements but looks set to terminate their support from the end of January. The FCA has opened a consultation on changing consumer credit guidance which could affect thousands who are not up to date on their vehicle finance payments.
The consultation is set to close next Monday with firms possibly able to repossess goods from 31 January 2021.
A statement from the FCA said drivers would only be able to avoid repossession in “exceptional circumstances”.
A statement said: “Our current consumer credit guidance means that before 31 January 2021 firms should not terminate a regulated agreement or repossess goods or vehicles under the agreement that the customer needs, except in exceptional circumstances.
“We now propose changing this so that consumer credit firms will be able to repossess goods and vehicles from 31 January 2021.
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“However, this should only be as a last resort, and subject to complying with relevant government public health guidelines and regulations, for example on social distancing and shielding.”
The FCA said firms will be expected to consider the impact their decision will have on customers.
This was especially important for those who are vulnerable or have been affected due to the pandemic.
The ruling will be a hammer blow for thousands of families who have been furloughed or lost employment due to the pandemic.
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But rules on repossessions could still be updated or changed if the FCA makes alterations during the consultation process.
A ban on repossessions was initially put into place for 31 October 2020 but this was later extended as the effects of the pandemic continued.
However, the FCA said that restricting repossessions for those struggling with payments would not be in the interests of the driver.
They warn drivers stuck in existing policies could end up owing more in the long run due to high-interest rates.
The FCA said their approach still offers “appropriate protections” as firms would only repossess cars as a “last resort”.
Their statement said: “For customers who remain in payment difficulties under a relevant consumer credit agreement, continuing to restrict repossessions may not be in their interests.
“The shorter terms and higher interest rates on these agreements, combined with the depreciating value of the goods or vehicles, means that they could end up owing more in the long term if repossessions are prevented.
“Our approach, therefore, takes appropriate account of the risks to customers of further asset depreciation, whilst providing appropriate protections by ensuring that firms repossess only as a last resort and also consider the impact of repossession action on those who are vulnerable, as well as following relevant government public health guidelines and regulations when undertaking repossession action.”
Demand for car finance contracts has increased in recent yeatrs as drivers deperately secure their dream vehicles.
Data from the Finance and Leasing Association (FLA) revealed 91 percent of new private cars were financed in the year to June 2019.
Figures from Statista shows approxiamtely 1.49million used cars were bought using finance by consumrs and businesses in the year to February 2020.
In comparison, just 55,000 used cars were purchased by businesses in the same period.
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