If you’ve ever taken out a car finance agreement in the UK, there’s a chance you might have been mis-sold your deal without even realising it. Mis-selling is a term that gets thrown around a lot, but what does it actually mean in the context of car finance? And more importantly, how do you know if it happened to you?
For years, car dealerships and lenders have been offering finance agreements that weren’t always as transparent as they should have been. Some drivers unknowingly signed contracts with hidden fees, inflated interest rates, or unfair commission structures. If this sounds familiar, you might have grounds to reclaim money that was unfairly taken from you.
Understanding Car Finance Mis-Selling
Mis-selling happens when financial products are not sold in a fair or transparent way. In the car finance world, this could mean a salesperson didn’t explain your options properly, withheld crucial details, or even pushed you towards a particular deal because it benefited them more than it benefited you.
The Financial Conduct Authority (FCA) launched an investigation into car finance mis-selling in 2019, revealing widespread issues in the industry. One of the biggest problems? Discretionary commission arrangements (DCAs)—a practice where brokers and dealers had the freedom to hike up interest rates in order to pocket higher commissions. Many customers were completely unaware this was happening, and as a result, they ended up paying much more than they should have.
But mis-selling doesn’t just stop at commission structures. It can also involve misleading information, lack of proper affordability checks, or contracts with terms that weren’t fully explained.
Signs You Might Have Been Mis-Sold Car Finance
Not everyone who took out a car finance deal was mis-sold, but many were. If you suspect something wasn’t quite right with your agreement, there are some key signs to look out for:
- Undisclosed Commissions: If the dealer or finance broker earned a commission for your deal and never told you, that’s a major red flag. This is particularly concerning if the commission affected your interest rate.
- Higher-Than-Necessary Interest Rates: Were you given an interest rate that seemed excessively high, especially compared to other people with similar credit scores? Dealers often had the power to increase rates without telling customers.
- Lack of Clear Explanation: If no one clearly explained the terms of your agreement, including the total cost, interest rates, and repayment structure, you may have been mis-sold.
- Pressure to Take a Deal: If you felt rushed or pressured into signing a finance agreement without being given enough time to consider your options, that could indicate mis-selling.
- Poor Affordability Checks: Lenders are required to check whether you can actually afford the repayments. If you were given a finance deal despite it stretching your finances too thin, it may not have been sold responsibly.
If any of these apply to you, you might have a valid claim.
Types of Car Finance Affected by Mis-Selling
Car finance comes in different forms, and unfortunately, mis-selling has been an issue across all major types:
- Personal Contract Purchase (PCP): One of the most popular finance options, PCP deals often come with hidden commission arrangements. Many drivers were unaware that their monthly payments or final balloon payment were inflated because of dealership commissions.
- Hire Purchase (HP): With HP, you make fixed monthly payments until you own the car. However, many customers weren’t given a clear breakdown of interest rates, or they were placed on deals that were unaffordable.
- Lease Agreements: Even though leasing isn’t technically ‘finance’ in the same way as PCP or HP, some lease agreements were mis-sold when customers weren’t properly informed about mileage limits, additional fees, or termination costs.
Regardless of the finance type, the core issue remains the same—if you weren’t given all the necessary information or if your deal was structured unfairly, you might be entitled to compensation.
The Financial Conduct Authority’s Crackdown
The FCA has taken serious action against unfair practices in the car finance industry. Their investigation found that many customers were charged higher interest rates than necessary due to secret commission deals between lenders and brokers.
This prompted regulatory changes, and as of January 2021, discretionary commission arrangements were officially banned. While this helps prevent new cases of mis-selling, it doesn’t change the fact that thousands—if not millions—of UK drivers were affected before the ban came into place.
Now, financial experts predict that the mis-selling scandal could lead to compensation claims similar to the PPI (Payment Protection Insurance) scandal that saw billions paid back to consumers. If you were mis-sold car finance, you might have a strong case to reclaim what you’re owed.
How to Check If You’re Eligible to Make a Claim
The first step in making a claim is reviewing your finance agreement. If you still have the paperwork, check for anything that seems unclear or suspicious, particularly regarding commissions, interest rates, and fees.
If you don’t have your original documents, don’t worry—you can still request them from your lender or finance provider. Many claims companies can also help track down the necessary information on your behalf.
Once you have the details, consider the following:
- Were you properly informed about the interest rate and total repayment costs?
- Did the dealer or broker disclose any commission they received from the lender?
- Were you pressured into signing the agreement without full transparency?
- Were affordability checks properly conducted before you were approved for finance?
If any of these issues apply to your situation, you could be eligible to claim compensation.
What You Could Be Entitled To
Compensation amounts can vary, but in general, those who successfully claim could get back:
- Excess interest payments: If you were charged a higher interest rate due to an undisclosed commission, you could reclaim the extra amount you paid.
- Refunds for additional charges: Any unnecessary fees or costs added to your finance agreement could also be refunded.
- Potential compensation for financial distress: If mis-selling put you in financial difficulty, additional compensation may be available in some cases.
The key is proving that you were mis-sold the finance in a way that caused you to pay more than you should have.
Taking Action: What to Do Next
If you believe you were mis-sold car finance, it’s important to act sooner rather than later. While there isn’t a strict deadline yet, financial claims often have time limits, so starting the process early is always a good idea.
The first step is reaching out to a claims expert or a company that specialises in car finance mis-selling. They can assess your case, guide you through the claims process, and help ensure you receive any compensation you’re entitled to.
Many firms operate on a no-win, no-fee basis, meaning you won’t have to pay anything upfront. Instead, they take a percentage of any successful claim, ensuring you don’t risk money chasing a claim that might not be valid.
Conclusion
Car finance mis-selling is a serious issue that has left many UK drivers out of pocket. With lenders and brokers prioritising their own profits over fairness, countless customers were unknowingly placed on deals that cost them far more than necessary. If you suspect you were mis-sold your finance agreement—whether due to undisclosed commissions, unfair interest rates, or lack of clear information—you may have a strong case to reclaim money.
Taking action now could mean getting back thousands of pounds that were wrongly taken from you. If you’re unsure where to start, Reclaiming Car Finance can help you navigate the process and fight for the compensation you deserve.
