What To Do When Your Car On HP or PCP Is Faulty

Friday, 24. March 2017

Hi, Graham Hill here, thank you so much for visiting my blog, I hope you learn a lot and as a result end up driving a great car. In order to do so you can get all the information you need by buying my book, An Insider Guide To Car Finance or use me to finance your next car. Happy driving.

For years I have been advising customers, SME’s and consumers in general about their rights regarding the purchase and finance of vehicles and what to do when things go wrong. You buy a vehicle and finance it on HP. In these circumstances there has always been an obligation on both the supplier (the dealer) and the provider of the finance as the transaction is regarded to be a ‘linked transaction’.

This made both parties jointly liable if a car that you bought subsequently displayed a fault that could be proven to have existed when the car was sold to you. This doesn’t just apply to cars, it applies to any other goods that you buy this way. However, had you ignored the dealer and complained to the lender in the first instance he would normally direct you, quite incorrectly, back to the dealer ‘as he supplied the car so is liable’.

I’ve even had rows with very senior members of staff at HP companies pointing out that the rights of the customer are exactly the same whether dealing with the finance provider or the dealer who supplied the goods. In fact as we now learn from the Financial Ombudsman it is the finance company who should put matters right. More of that in a moment.

But for most people this is where it starts to get strange because let’s say that the car was advertised as having 6 forward gears and when you bought the car the spec. of the car showed 6 forward gears and even the salesman explained that the car had 6 forward gears but when the car was delivered you find that it only has 5.

The car can be rejected as ‘not as described’ but the HP company is as liable as the dealer even though he was not party to the negotiations. Strange but true – but this isn’t the end. According to one law firm some of the confusion has now been clarified – or has it? According to them there is a very clear process. The car is inspected and agreed upon by the consumer prior to the purchase. In turn he agrees to take out HP or PCP and the car is invoiced to the lender.

The lender now owns the car and the transaction between the lender and the dealer is a commercial transaction and doesn’t fall within the rules of the new Consumer Rights Act. As a consumer your rights within the Act are now between you and the lender. If the goods are faulty, not fit for purpose or not as described you have a case – only against the lender. So if you take up the case against the lender don’t be pushed back to the supplying dealer. That is the lender’s problem – not yours.


As most lenders are very keen to get the case off their desk they are unwinding the finance and taking back the car then forcing the dealer to take the car back from them and refund to them the price paid under threat of withdrawing their credit facilities. The firm of lawyers is suggesting that the dealers start to fight back, no doubt earning the firm of solicitors fees. This won’t affect you as you have already returned the car, had the finance unwound and had your money refunded.

They are also suggesting to dealers to prevent the situation from happening in the first place by explaining to the customer something along the lines of, ‘We think highly of our customers and our cars so if you have any problems within the first 6 months of having the car please let us know and we will do our best to resolve the situation to everyone’s satisfaction’. Not strictly the law but can avoid losing heavily by having to take the car back from a sympathetic lender. Know your legal rights and don’t be afraid to exercise them.

A couple of final points from the Financial Ombudsman Service from their website:

Where the dealer offers you a ‘Fixed Sum Loan’ that is linked to your car purchase this is covered by section 75 of the Consumer Credit Act making the dealer and the lender jointly and severally liable:

For fixed-sum loans, it is because the transaction is covered by section 75 of the Consumer Credit Act 1974.

However, if you take out a loan separately from a bank or building society you are not covered by section 75. It has to be a transaction linked to the car at the point of sale.

Surprising to many, a Hire Purchase agreement does not fall inside section 75, here is what the FOS says:

Hire purchase agreements are consumer credit contracts that give the consumer the right – but not the obligation – to buy the goods at the end of the hire purchase term. Section 75 does not apply to hire purchase.

However, with so much confusion, the FOS will consider all claims from consumers for faulty goods, not fit for purpose or not as described. From my experiences the FOS will go to great lengths to lend a sympathetic ear to consumers and they don’t cost you anything. At the end of the process you can still sue the company concerned, especially if you feel that severe damages should be awarded. The FOS is restricted as to how much compensation it can award. By Graham Hill

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