Investors looking to drive up their returns are being offered to ‘buy to let’ cars for drivers with poor credit histories.
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The novel idea allows investors to buy a car which is then leased to a motorist who cannot find finance elsewhere.
Returns are expected to average 11% a year.
Buy2LetCars, the company behind the scheme, is reaching out to investors with commercial radio advertising.
Business model
The business model is simple:
- The investor puts a minimum £13,500 cash into the company
- The company buys a Hyundai i30 Active car – which has a list price of around £8,500
- The car is leased to a motorist for about £300 a month
- The investor receives £250 a month from the company
- At the end of the 36-month leasing term, the investor also receives a £8,995 lump sum
A spokesman for the company says they have 300 investor-funded cars on the road, but as the scheme has only been running for around two years, no one has yet received the end-of-term lump sum.
Risks for the investor include the motorist driving off with the car, but the company says this is unlikely as each car is fitted with a tracker and a remote immobilisation device that renders the car undriveable.
Also, the investment is not regulated, so is not protected by the Financial Services Compensation Scheme.
This means if the investment fails, the investor cannot seek redress through the FSCS or take any dispute to the Financial Ombudsman.
Investment risks
The arrangement is also expensive for drivers. The standard leasing cost of a Hyundai i30 Active is around £179 for a driver accepted under the maker’s own leasing scheme.
The firm says investors still receive their monthly payment and lump-sum if the motorist defaults on the deal or if a car is written-off.
Investors also have to declare their monthly payment and the lump sum on self-assessment tax returns and pay income tax on the cash at their marginal rate, so the yields quoted by the company are gross not net.
Other issues include who owns the vehicle if the company fails.
Buy2LetCars is named as car’s keeper on the vehicle registration document. The company says this stops any parking tickets or other traffic offence issues involving the investor.
However, an investor might have to take legal action to locate and repossess the vehicle if the company stopped trading.
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