How Mis-Sold Car Finance Agreements Affect Borrowers’ Credit

Mis-sold car finance deals can greatly affect consumers in the long run. The truth is, when terms are not clearly communicated, borrowers can end up with debts they cannot handle, creating a cycle of financial stress. 

Some even finish paying the loan without finding out about hidden costs. By the time they become aware, the cycle has been set to action. 

Want to know more about the impact of mis-sold agreements on your personal finances and the motor finance industry as a whole? Keep reading to find out, as well as learn about tips on how to recover and steps for doing so. 

What is Mis-Sold Car Finance?

Mis-sold car finance occurs when drivers enter an agreement with a lender in which the terms are not clearly explained.

Laws exist to protect people from this unethical practice. Two legal foundations are the Consumer Rights Act 2015 and the Consumer Protection from Unfair Trading Regulations 2008.

Moreover, the Court of Appeal declared mis-selling unethical as it goes against providers’ fiduciary responsibilities toward consumers. The Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) help uphold the decision.          

How Can Mis-Sold Car Finance Harm Your Credit Score?

The reality is that mis-sold car finance damages your credit score. You might be wondering how such a personal finance situation happens. 

Keep in mind that misrepresented motor contracts tend to cost more than necessary, which means that the higher-than-expected payment can become too much in the long run. 

Some consumers struggle with the added burden, causing them to make payments beyond the due date, which get reported to the relevant credit bureaus. 

Over time, the accumulated missed payments make it harder to pay dues, causing ballooning interest rates and even defaults. These marks on your record stay on your credit report for up to seven years.

If you are assuming this to make a small dent in your rating, the bad news is that negative records on your credit performance can lower your chances of successfully getting loans or credit card applications. 

It increases your debt-to-income ratio, which further makes qualifying for other types of loans and mortgages tougher. 

At best, this can result in customers getting stuck in a cycle of debt payments. At worst, it can cause them to get deeper into debt.

The Impact of Misreporting in the Motor Sector

Inaccurate reporting by lenders can make matters worse for borrowers affected by mis-selling. Undisclosed fees, charges, and commissions affect not only individual consumers but more so the entire motor lending industry. 

Without tighter regulations against this practice, blown-up rates can quickly become industry standards as lenders inflate their reporting of the market value of car financing. 

In turn, this causes an artificial spike in market-wide vehicle prices, leading new borrowers to unknowingly accept unfavourable agreements, perpetuating the cycle.

Tips for Recovering from Mis-selling

If you are dealing with the effects of a misrepresented motor contract, you will be glad to know that there are actions you can take to recover. 

Your best choice is to monitor your credit score through credit reporting services. This gives you a way to find out what transactions negatively impact your rating. Then, you can take the necessary actions to course-correct. 

Those worried about the harm caused by misleading agreements will be glad to know that you can file car finance claims. 

The most probable way to recover is to file a car finance claim after verifying your qualifications. With this, you might receive a refund or compensation from the lender. 

One thing you should know is that taking action early can minimise issues in car finance complaints.

Here are some tips to help you recover:

1. Document Your Case

Having a clear record of your agreement, along with any type of communication or marketing materials, can help you support your claim. 

2. Log Claims Quickly

Remember that acting fast is key when it comes to claims. Delays can complicate your case, and timely action helps minimise issues. 

3. File a Claim with the Lender

Should you find problems with your contract, you should get in touch with your dealer or lender. Make sure to clearly state the issues and present as much evidence as possible. 

4. Wait for a Final Response

The lender is given eight weeks to respond to your complaint. As a consumer, you can accept or decline the resolution. You can also bring the matter to the FOS for additional action. 

The Takeaway

Dealing with the impact of mis-sold car deals can be challenging. The good news is that you can take steps to minimise the damage to your immediate finances and long-term credit ratings, as well as the integrity of the motor industry. 

Now that you know more about the effects of car finance mis-sold contracts, you can recover financially by monitoring your credit rating, gathering evidence, and taking proactive steps by filing a complaint.