Money-saving guru Martin Lewis has sounded the alarm for UK car buyers, revealing a hidden charge that could leave motorists hundreds of pounds out of pocket.
The PCP Trap You Need to Know About
In his latest consumer warning, the founder of MoneySavingExpert.com highlights how Personal Contract Purchase (PCP) agreements - one of the most popular ways to finance a car - contain a potentially costly catch that many drivers overlook.
What's the Hidden Cost?
"Most people focus on the monthly payments when taking out PCP deals," explains Lewis. "But there's another charge buried in the small print that could come as a nasty shock."
The issue lies in the optional final 'balloon payment' that allows buyers to own the car at the end of the agreement. Many assume this payment is fixed, but Lewis warns: "The final payment can actually increase if the car's value rises - and with used car prices soaring, this is happening more often."
How This Could Cost You
Here's how the system works against buyers:
- Your final payment is based on the car's predicted future value when you sign the agreement
- If the actual value exceeds this prediction, the finance company can increase your balloon payment
- With used car prices up 30% since 2020, many face unexpected extra costs
Lewis stresses: "This isn't some obscure clause - it's in most PCP contracts. Yet shockingly few buyers are aware of it until they get hit with the bill."
What Can You Do?
The consumer champion offers these key tips:
- Read the small print: Check your contract for 'Minimum Guaranteed Future Value' clauses
- Negotiate: Some lenders may cap increases if challenged
- Consider alternatives: Personal loans or hire purchase might offer more certainty
- Plan ahead: Factor in potential payment rises when budgeting
With the cost of living crisis squeezing household budgets, Lewis's warning comes at a crucial time for millions of UK motorists considering their next vehicle purchase.
