Are budget motorists being forced off the road?

Drivers are facing a battle to stay behind the wheel, and the tighter the motorist’s budget, the more hazards exist for them in the road ahead.

Motorists, most notably those from lower-income households, face being forced off the road, thanks to rising running costs and huge hikes in the price of second-hand cars.

Petrol companies are charging more and more at the pump, despite a fall in wholesale fuel costs. And, to add to these woes in the south of England, motorists in London and Oxford can now factor in car tax changes.

The capital’s higher congestion charge, which was upped as a temporary measure during the COVID pandemic, is to stay.

And Oxford is launching the UK’s first ZEZ (which stands for the far-less snazzy zero-emissions zone) and it means that – from the end of this month – fees of £2 up to £10, emission dependent, will be slapped on virtually every vehicle entering the city’s pilot area.

So, changes to the taxes being imposed on motorists – particularly those whose vehicles run on petrol or diesel – will at the very least dissuade them from driving into city centres. It’s hitting the motorist in the pocket. And doing so to promote the use of public transport in order to help reduce pollution is nothing new.

But drivers, especially those with lower budgets and incomes, now have a new problem to contend with.

A shortage of more affordable used cars means prices have been driven up by the supply-and-demand imbalance of the second-hand market at present.

Fewer new vehicles are coming onto the market. Last year the car market had two major negative factors, in addition to the effect of the COVID pandemic. Job losses due to Brexit played a major part, but the sector is also feeling the effects of a global computer chip shortage. That stilted car making which had otherwise been on the road to recovery from the pandemic.

Production of a wide range of technological products were affected. Estimates suggest that the chips won’t be readily available again for some time. In fact, production is unlikely to be back to normal until the second half of this year at best, some time in 2024 at worst.

Plants that produce semiconductors simply weren’t able to meet the demand last year, and reports emerged in the summer that buying PS5 games consoles was nigh-on impossible. Elsewhere, Ford, Toyota and Volvo either slowed down or halted production altogether.

So, fewer cars came on to the market, with the result that second-hand cars – already big business in the UK’s driving community – were in huge demand. Last month, the cost of an average used car went up by 40 per cent from the equivalent models 12 months earlier.

In November, used cars were snapped up 13 per cent faster than two years earlier and average prices shot up nearly £4,000 from the 2020 average of £13,500. Those rises made it harder for potential customers to find the most affordable vehicles, ie those at the lowest end of the market.

Looking at the sub-£2,000 market, availability was slashed by around a quarter and costs are rocketing, often by as much as 30 per cent.

One option a large portion of modern motorists are plumping for when getting a new set of wheels is Personal Contract Purchase (PCP). Most people in the market for a car have at least considered a PCP plan and, while they are more commonly associated with brand new vehicles, it is possible to use that method of financing for a used model too.

The attractive PCP deals attached to off-the-conveyor-belt new models are rarely applied to older vehicles, where higher APR percentages and/or bigger up-front payments may be demanded.

The basic arrangement remains the same but the financiers are more likely to be dealers’ own plans (often these are backed by a third party) rather than finance deals offered directly by the manufacturer.

Here’s how it works.

The prospective motorist puts down an initial deposit and agrees to make monthly payments over a set term, which is usually two to four years. When that term ends the driver – and for obvious reasons we won’t yet call them the car’s owner – has three options.

There is a final ‘balloon’ payment to make to the dealer, and it is only after this is paid that the driver will take ownership of the car. Until then the driver is merely leasing the vehicle, with the cost depending on a) their deposit, b) the length of their PCP term, and c) the car’s residual value.

The driver may not be willing or able to make the balloon payment, in which case their other choices are to either enter into a new finance arrangement or simply hand the car back and walk away. This last option leaves them free to simply start a new PCP arrangement, be that with the same dealer or their rival across the road.

There are pros and cons to refinancing at the conclusion of your initial term – of course there are. On the plus side, you could lower your monthly payments thanks to a reduced interest rate and/or an increase to the term of your lease.

But, refinancing on a new PCP deal might not represent the best value. Lengthening the deal will most likely mean paying out more in the long term to own the car which, let’s also keep in mind, will have had its value depreciate.

Looking at the sub-£2,000 market, availability was slashed by around a quarter and costs are rocketing, often by as much as 30 per cent.

The attractive PCP deals attached to off-the-conveyor-belt new models are rarely applied to older vehicles, where higher APR percentages and/or bigger up-front payments may be demanded.

Here’s how it works.

Some dealers won’t offer PCP financing on lower-value cars, mainly because the final value will be too low or unpredictable. Generally speaking, though, you should be able to finance a car even if you’re working to a tight budget.

And if you would like to change your car regularly anyway and don’t plan on making the balloon payment to take ownership then a PCP plan could be right for you, whether that is on a new or used car.

Of course, many of you will already have used PCP to finance a vehicle. It can be a good way to get a new car with affordable monthly payments.

But think back to when you made the deal.

There is a lot of small print involved with arranging a PCP finance agreement, and only around one in 10 customers know the finer points of what they have been sold. Do you know for sure that you weren’t mis-sold your PCP deal?

You have a case to make a claim for mis-sold motor vehicle finance if:

You borrowed more money than you needed to
No one informed you about other finance options, like Hire Purchase
You were pressured, or felt coerced, into a PCP deal
The commission on your sale was kept hidden from you
It was never made clear that you didn’t own the car until the balloon payment was made
You were not told who would be responsible for paying for repairs

This list isn’t exhaustive but if one or more of these instances happened when you signed up for the PCP deal, you need to find out if you can claim compensation.