Consumer protection watchdog to study car finance plans

The consumer protection watchdog will study the use by car dealers of so-called personal contract plans (PCPs) — a type of finance that involve a balloon payment and are linked to future depreciation values — because consumers may not be fully aware of the complexity of the loans.

In the UK, where PCPs have exploded in recent years, concerns have been raised about their complexity, the high level of commission earned by car dealers selling PCPs, and whether they are helping fuel a consumer credit boom.

The finance is a hybrid of traditional hire purchase agreements which, though usually cheaper in terms of the monthly repayments, is linked to the depreciation and mileage of the car, and involves striking a ‘guaranteed minimum future value’.