Car Finance Affordability Checks: What Lenders Should Have Done

Most of us remember the fun parts of getting a new car. The test drive. The new-car smell. The moment you check whether your phone fits neatly in the little storage compartment. What many people don’t remember is anyone asking more than a passing question about whether the monthly payments would comfortably fit into their life and budget.

Over time, as more drivers have taken a fresh look at their old PCP (Personal Contract Purchase) and HP (Hire Purchase) agreements, it has become clear that some car finance providers were not always as thorough as they should have been when carrying out affordability checks. Some customers barely recall being asked anything meaningful at all. Others say the process felt quicker than choosing a sandwich in a busy lunch queue.

If you are trying to understand what should have happened when you first applied for car finance, this guide explains the basics in plain English, with a light touch of humour to soften the administrative pain.

So, What Is an Affordability Check Really Meant to Be?

At its core, an affordability check is a sense-check. It is how a responsible lender confirms that the monthly repayments are realistic based on your financial situation at the time. Nothing intrusive. Nothing dramatic. Just a practical step designed to reduce the risk of future financial difficulty.

Think of it like checking your fuel gauge before a long journey. You do not need a full engine report, just reassurance that you are not about to break down ten minutes down the road.

1. Lenders Should Have Looked at Your Monthly Income

Not every lender needed to review bank statements, but they were expected to have a reasonable understanding of your income. This usually included:

• your regular take-home pay
• whether your income was stable
• your employment type, including self-employment
• whether the proposed repayments were realistically manageable

If the salesperson nodded, typed briefly into a screen, and moved straight on, that may not reflect the level of assessment expected under responsible lending standards.

2. Essential Outgoings Should Have Been Part of the Conversation

Affordability is not based on income alone. Lenders were also expected to consider essential, unavoidable outgoings such as:

• rent or mortgage payments
• household bills
• existing credit commitments
• travel or childcare costs
• other regular essential spending

If these were never discussed, it is reasonable to question how the lender decided the finance agreement was suitable.

3. Lenders Should Have Looked for Signs of Financial Pressure

Responsible lending includes identifying indicators that the agreement might cause financial strain. These could include:

• a high level of existing debt
• a history of missed or late payments
• signs of pressure shown on a credit report
• anything suggesting the agreement could stretch the borrower’s budget

This is not about judgement. It is about ensuring that the agreement does not place someone in a position they may struggle to maintain.

4. The Loan Term Should Have Been Appropriate

Longer terms can reduce monthly payments but increase the overall cost of borrowing. Lenders were expected to consider whether the term was appropriate for the individual, not just whether it made the figures look attractive.

If the main explanation was simply that it “made the monthly payments cheaper”, that may not align with responsible lending expectations.

5. You Should Have Understood the Impact of the Agreement

Affordability also involves understanding. Before entering a PCP or HP agreement, customers should have been told:

• what happens if a payment is missed
• how interest affects the total amount payable, including the annual interest rate and APR
• the difference between PCP and HP agreements
• early termination options
• the optional final payment on PCP, often referred to as the predicted future value
• the total amount payable over the full term, including standard fees

If you left the dealership with a new car but only a partial understanding of the finance agreement, key information may not have been communicated clearly.

Where Things Often Went Wrong

Many customers now report that affordability checks felt rushed or superficial. Common issues included:

• limited discussion about income or income stability
• no questions about essential expenditure or address history
• little or no consideration of existing credit commitments
• no clear explanation of how APR affected the overall cost
• insufficient illustration of whether repayments were genuinely affordable

In some cases, the focus appeared to be on completing the sale rather than assessing suitability.

Why This Matters Today

Where affordability checks were inadequate, some customers may have entered car finance agreements that were not appropriate for their circumstances at the time. This is why many people are now reviewing historic PCP and HP agreements.

Importantly, this does not mean that a complaint will automatically succeed. Each agreement must be assessed on its own facts. However, consumers are entitled to ask whether the correct process was followed.

What This Means for You

Affordability checks were intended to protect both lenders and customers. They were meant to ensure that agreements were understood and that repayments were realistic before anything was signed.

If you are reviewing an old car finance agreement and feel these steps may have been rushed or overlooked, a specialist review can help clarify what should have happened.

Mis-Sold Expert provides educational support to help consumers:

• understand what lenders were expected to assess
• review whether finance agreements were explained properly
• navigate the complaint process with clarity

This can help remove uncertainty and make the process easier to understand.

If you believe you were mis-sold car finance, contact Mis-Sold Expert to find out how they can help.

Final Tips When Applying for Car Finance

It is normal for lenders to carry out credit checks, including soft and hard checks, when you apply for car finance. You may be asked for proof of income and address history, typically covering the last three years.

A poor or improving credit score does not automatically prevent access to car finance, but it can affect interest rates and lender choice. Understanding how affordability checks should work can help you make informed decisions and avoid surprises later.

You can claim without using a claims management company; you can go to your finance provider and then to FOS, for free. Additionally, the FCA is introducing a free consumer redress scheme.