In 2014 I took out a hire purchase agreement to buy a car. At the time, I believed the lender had checked everything properly and that the finance had been approved responsibly.
Years later, after struggling with the repayments and eventually returning the vehicle, I complained that the lending had been unaffordable from the beginning.
The Financial Ombudsman Service investigated the case.
Their conclusion was clear: the finance should never have been approved.
This post explains what happened, what the Ombudsman found, and what the outcome was.
The Car Finance Agreement
The agreement started in September 2014 and was arranged through Vehicle Credit Limited (VCL) (who became Ratesetter).
Here were the key details:
- Vehicle: 2011 Vauxhall Corsa
- Amount financed: £6,499
- Deposit: £0
- Interest charged: £6,710.63
- Total amount repayable: £13,209.63
- Monthly repayment: £313.92
- Term: 42 months
In other words, the interest alone was more than the amount borrowed.
At the time I was earning roughly £2,000 per month, meaning the car payment alone was around 15% of my income.
On paper, the lender believed this was affordable.
Reality turned out to be very different.
My Financial Situation at the Time
What the lender either missed or ignored was my existing financial situation.
My credit file in 2014 showed serious problems. Let’s not forget I was blogging about my Debt back then as well!
According to the Ombudsman’s findings, I had:
- At least 12 defaulted accounts
- Defaults dating from 2008 to 2013
- Around £32,000 in outstanding defaulted debts
- An existing hire purchase agreement
- A credit card over its credit limit
Some accounts had barely reduced in balance, suggesting I was only making minimal payments.
In short, my credit file showed a long history of financial difficulty.
Despite this, the loan was approved.
The Affordability Checks
The lender said they completed an income and expenditure assessment.
According to their records:
- Income used in the assessment: about £2,016 per month
- Declared monthly expenses: £1,369
- Disposable income: roughly £448
Based on that calculation, they concluded I could afford the £313 monthly payment.
But the Ombudsman found several problems.
First, the figures used in the affordability assessment weren’t entirely clear. For example, the income figure used was slightly different from what my payslip showed.
More importantly, the lender did not properly investigate my actual financial situation, despite clear warning signs on my credit file.
Given the number of defaults and ongoing financial issues, the Ombudsman said the lender should have taken additional steps, such as reviewing bank statements to verify spending.
They didn’t.
What the Bank Statements Showed
During the Ombudsman investigation, I provided bank statements from the months before the loan was approved.
These showed:
- Income of around £1,990 per month
- Rent of £595
- Essential bills of around £335
- Food spending of about £200
This meant basic living costs were already around £1,130 per month.
On top of that, I was making payments towards defaulted debts of roughly £200 per month, plus minimum payments on other credit.
Even though there appeared to be disposable income on paper, the Ombudsman noted something important:
I was already struggling to maintain existing credit commitments, including another hire purchase agreement with lower repayments.
If I was struggling to manage a £214 monthly payment elsewhere, it was unlikely I could sustainably manage a new £313 loan.
The Ombudsman’s Conclusion
After reviewing all the evidence, the Financial Ombudsman concluded that:
- The lender did not carry out reasonable and proportionate checks.
- My credit history clearly showed serious financial difficulties.
- Approving the finance was irresponsible lending.
In other words, the loan should never have been approved.
The Proposed Resolution
Because the lending was deemed irresponsible, the Ombudsman recommended that the lender should:
- Remove all interest and charges from the agreement
- Calculate what I actually paid and refund the difference
- Treat £150 per month as a fair charge for the time I used the car
- Add 8% interest to any refund
- Remove any negative information from my credit file related to the agreement
The reasoning behind the £150 figure was that I had still used the vehicle for several years, so some payment for that usage was considered fair.
But the full contractual payments were not.
Why This Case Matters
Car finance affordability checks are supposed to protect borrowers from exactly this situation.
Lenders are required to look beyond simple calculations and consider whether someone can repay sustainably without financial hardship.
In my case, the Ombudsman believed that if proper checks had been carried out, the loan would never have been approved.
Lessons From the Experience
Looking back, there are a few important lessons:
- Lenders do make mistakes when assessing affordability
- A loan being approved does not mean it is actually affordable
- If you believe lending was irresponsible, you can challenge it
The Financial Ombudsman regularly upholds complaints where lenders failed to properly consider a borrower’s circumstances. However the opposite can be true, I and I am sure I will write about those in the future.
Final Thoughts
At the time, the loan seemed like a solution. In reality, it added to an already difficult financial situation.
The Ombudsman’s investigation confirmed what I had suspected: the lending decision simply wasn’t responsible.
If you’ve taken out credit that you believe was unaffordable from the start, it may be worth looking into whether the lender carried out proper checks.
Sometimes, the system actually works.
Even if it takes a while.
