More than a quarter of drivers who currently have car finance say they feel ‘trapped’ by their arrangements and regret their decision to take out a deal.
That’s according to new research conducted by car subscription service Drover, which found that the majority of motorists currently financing their vehicles can’t afford the balloon payment to keep the motor at the end of the contract.
As a result, almost two-thirds feel pressured to take out another finance because they don’t want to lose the money they’ve already put in to a new car.
Around 23 per cent of all UK motorists have a motor on finance, which accounts for 8.7 million drivers.
More than a quarter of these (28 per cent) feel confined by their agreements, based on the car subscription firm’s survey of 1,500, who are currently in a Personal Contract Purchase finance arrangements – one which requires low monthly installments and a large balloon payment at the end of the contract if the driver wants to keep the vehicle.
Of these motorists who feel hemmed into deals, some 65 per cent said they couldn’t afford this final payment and therefore felt obliged to take out another PCP deal so they wouldn’t be walking away from the investment they’ve already made.
Further questioning revealed that three in five (60 per cent) can’t afford to terminate their arrangement early.
Unsurprisingly, of the motorists who said they’re trapped by finance, 61 per cent think they’re getting a bad deal. Some 54 per cent also added that the next PCP contract they enter is worse than the one previous.
More shocking was that 28 per cent of these motorists have had at least three rounds of finance with the same dealer, with many reporting a higher APR interest rate than their previous deal (34 per cent).
As has been the common argument since finance become the most popular form of new car ownership in recent years, many are getting themselves into agreements they don’t necessarily understand.
Some disgruntled drivers said they were ‘bamboozled’ by the available options and the complexity of car finance, and ultimately didn’t know what they were signing up for.
Two-fifths (43 per cent) said they took out deals to end the stress of buying a car, while a third (34 per cent) felt confused by all the finance deals out there.
Almost half of the 1,500 panel with finance confessed to not shopping around (46 per cent) and a shocking 36 per cent are unable to recall what their rate of interest is.
Currently, the Financial Conduct Authority is conducting an audit into the motor finance business to understand if products are being miss-sold to customers.
Part of its analysis will review if providers are taking the right steps to ensure that they lend responsibly and if customers can afford what’s on the table.
It will also look into if information provided to drivers is sufficiently clear and transparent and if firms are managing the risk that asset valuations could fall and create a finance bubble.
Felix Leuschner, founder and ceo of the car subscription business, said motorists should consider other avenues that are more flexible and less binding when it comes to driving the latest models.
‘Buying a car is daunting prospect for many drivers – not only is there so much choice, but car finance deals are hugely confusing,’ he said.
‘We are aiming to help drivers by providing a more flexible way to run a car without the commitment of car finance.’
Drover is based on monthly subscriptions that can be cancelled at any time – similar to signing up for Netflix.
This covers the cost of the car, fully comprehensive insurance, servicing and maintenance, tax, MOT and breakdown cover.
That means subscribers only need to pay for the fuel they use on top of the all-in monthly charge.
The service has only been available since February 2018, though already has 2,000 active members.