Car finance compensation: were you mis-sold?

When you took out car finance (PCP or hire purchase), the dealer often arranged the loan through a lender. What most people didn't know: many dealers could set your interest rate within a range, and the higher the rate they sold you, the bigger the commission the lender paid them.

This was called a discretionary commission arrangement. It gave dealers a direct financial reason to charge you more — and the arrangement was rarely, if ever, explained to customers. The Financial Conduct Authority (FCA) banned these arrangements in January 2021.

You could be affected if all of these are true:

• You bought a car on PCP or hire purchase (not a personal loan or cash).
• The agreement was taken out before 28 January 2021 — potentially as far back as 2007.
• The dealer or broker arranged the finance for you.

The FCA has said around 12 million agreements could be eligible for compensation, with average payouts estimated at roughly £829 per agreement. The final compensation scheme has been delayed while legal challenges play out, with payments not expected before 2027 — but you don't have to wait to check where you stand.

• Find your agreement. Check old emails, paperwork, or ask the lender directly — they must confirm whether you had an agreement with them.
• Look for the commission wording. Search the document for "commission", "remuneration", or "broker fee". Vague wording like "we may receive a commission" without an amount is exactly the kind of disclosure the FCA says wasn't good enough.
• Check the interest rate. If your rate was noticeably higher than the best rates advertised at the time, that's a question worth asking the lender.
• Complain to the lender first. It's free. If they reject it or don't respond within the allowed time, you can take it to the Financial Ombudsman — also free.

You do not need a claims company to do this. Claims firms typically take 25–36% of any payout for a process you can do yourself for nothing.

• Balloon payment — the large final lump sum in PCP deals that many people don't clock until the end of the term.
• Early settlement charges — the cost of paying the agreement off early can be far higher than expected.
• Excess mileage and condition charges — PCP penalties that can run into hundreds of pounds at hand-back.

If you financed a car before January 2021, there's a real chance your agreement included hidden commission — and you may be owed money. Dig out the paperwork, check the wording, and complain to the lender for free. If the agreement is confusing, run it through JargonShield and see exactly what you signed.