Drivers locked into finance plans on new cars could face huge bills in the event that their cars are written off or stolen before the end of their agreements, says MotorEasy.
The motoring services provider is highlighting a surge in the number of motorists using personal contract purchase (PCP) deals to buy new cars over the last few years: in 2016, 87% of cars were bought on finance – an increase of 50% since 2009 according to July figures from the Finance and Leasing Association (FLA). Bank of England figures from June confirm that this leaves UK drivers with a total car finance debt of some £58 billion.
PCP deals allow motorists to have a new car for a few years, in return for monthly payments. At the end of the term – typically 3-5 years – they have the option to pay the remainder and own the car or simply hand it back.
However, 450,000 vehicles are written off in accidents each year (source: Honest John) and a further 76,356 are stolen and MotorEasy believes that very few consumers with PCP deals fully understand the implications to them if this happens before the end of their agreement.
Insurance companies typically only pay the market value of the car at that point, which could be significantly less than the finance settlement at the same point, leaving the motorist with a shortfall and a sizeable bill to pay.
MotorEasy founder, Duncan McClure Fisher, said: “PCP deals are a great way of financing a new car but motorists should be made aware that it is simply a standard hire purchase agreement, with a deferred settlement figure. Before that settlement figure is paid at the end of the agreement, you are just as exposed as with any other finance arrangement.”
MotorEasy’s new GAP insurance covers the difference between the vehicle market value and the remaining amount of the finance settlement. Cover starts at £63 for a one-year policy or £111 for three years, which compares favourably with similar products offered by main dealers (see below).
For more information on MotorEasy’s GAP insurance products, visit motoreasy.com