Car Finance Mis-Selling in the UK – The Complete Independent Guide

Car finance is one of the most common ways people in the UK buy vehicles. Over the past decade, millions of consumers entered into agreements such as PCP and Hire Purchase, often trusting that the deal offered was fair, competitive, and transparent.

However, growing regulatory scrutiny has revealed that many car finance agreements may not have been sold fairly. This guide exists to explain, clearly and without sales pressure, what car finance mis-selling means, why it matters, who may be affected, and what options exist if something went wrong.

Car finance mis-selling occurs when a finance agreement is sold in a way that is misleading, unfair, or lacks proper transparency — particularly around interest rates, commissions, and incentives.

Mis-selling does not require fraud. It often happens through structure, incentives, and omission, rather than outright lies.

In simple terms, an agreement may have been mis-sold if:

• Important information was not disclosed
• The customer was not given a real choice
• Financial incentives influenced the deal without the customer knowing
• The agreement created an unfair relationship under UK law

Not every car finance agreement is mis-sold. But many were sold in a way that raises serious questions.

Related: What is car finance mis-selling? (short version)

Mis-selling matters because it affects how much interest you paid, whether your deal was genuinely competitive, and whether you were treated fairly as a consumer.

In many cases, consumers paid significantly more than they might otherwise have paid — not because of their credit profile, but because of how the agreement was structured and incentivised.

Next step if this sounds relevant: How to complain about car finance mis-selling →

The Financial Conduct Authority (FCA) regulates consumer credit in the UK. Its role is to ensure that firms treat customers fairly, act transparently, and avoid conflicts of interest.

What the FCA found

The FCA identified that certain commission models in car finance created a clear conflict of interest. In some setups, dealers could increase the interest rate and earn more commission when the customer paid more.

Customers were often not told that the interest rate could be discretionary, that the dealer benefited financially from a higher rate, or that alternative rates may have been available.

Regulatory action

Discretionary Commission Models (DCM) were banned in 2021 due to concerns about consumer harm. Past agreements have come under scrutiny, and complaints have increased significantly.

Related: FCA car finance investigation (explained)

To understand mis-selling, it helps to understand how car finance is often sold in practice.

Step 1: Choosing the car

Most people focus on monthly payments, deposit, and PCP mileage limits — very few focus on APR comparisons or the total cost of credit.

Step 2: Finance offered at the dealership

The dealership introduces finance as the standard option, presents a monthly figure, and often frames it as non-negotiable.

Step 3: Agreement signed quickly

Paperwork is lengthy and technical and presented as standard. This environment makes truly informed consent difficult, especially when incentives are hidden.

One of the most significant issues is hidden commission.

What is commission?

Commission is a payment made by the lender to the dealer for arranging finance. Commission itself is not automatically illegal.

Where problems arise

The problem arises when commission influences the interest rate and the customer is not told or cannot meaningfully negotiate.

How it worked

In many agreements, dealers could increase APR and earn more commission. Customers were not told the relationship between the APR and the dealer’s commission.

Related: Hidden commission explained (dedicated page)

A Discretionary Commission Model allows the dealer to set or adjust the interest rate within a permitted range. The dealer’s commission can increase as the interest rate increases.

This creates a situation where the customer’s best interest conflicts with the dealer’s financial incentive.

Related: Discretionary commission models (DCM)

Many consumers focus on monthly payments, not APR. This made it easier for interest rates to be increased subtly, while the true cost differences remained hidden.

Even a small APR increase can result in hundreds or thousands of pounds of extra interest, with no obvious warning to the customer.

Transparency is central to UK consumer protection. In many car finance cases, commission was not mentioned, interest rate discretion was not explained, and alternatives were not offered.

That undermines the customer’s ability to make an informed decision.

Several UK legal principles may be relevant. This is a high-level explanation (not legal advice).

Consumer Credit Act – Section 140A (unfair relationship)

UK law allows courts to intervene if a credit agreement creates an unfair relationship between lender and borrower. Factors include how the agreement was sold, what the customer was told, and whether incentives distorted fairness.

FCA principles

Firms are expected to treat customers fairly, avoid conflicts of interest, and communicate in a clear, fair and not misleading way.

Not all car finance agreements are mis-sold. Eligibility depends on how the agreement was structured, what was disclosed, and whether incentives influenced outcomes.

Each case should be assessed on its own facts.

In the next parts of this guide we’ll cover:

• Who may be affected (PCP, Hire Purchase, years, lenders)
• How complaints work (DIY vs specialist support)
• What compensation can look like (examples)
• Common myths and real FAQs

One of the most common misconceptions is that car finance mis-selling only affects a small group of people or only applies to “extreme” cases. In reality, eligibility is often broader than people expect.

You may be affected even if:

• Your agreement is fully paid off
• You no longer own the car
• You never missed a payment
• The dealership seemed “helpful”
• The agreement felt standard at the time

Related: Who is eligible? (practical checklist)

Eligibility is about the sale, not the outcome. You don’t need to answer “yes” to every point below — but these are strong indicators that further review may be justified.

• Were you told the dealer could influence the interest rate?
• Were you told the dealer earned commission linked to your interest rate?
• Were alternative rates discussed?
• Was the focus mainly on monthly payments rather than the total cost of credit?
• Did the agreement feel rushed or presented as non-negotiable?

If your answer to several of these is “no” or “I don’t remember”, it doesn’t automatically mean mis-selling occurred — but it can be a signal that the sale may not have been fully transparent.

Car finance mis-selling is not limited to one product. However, some products are more commonly involved because of how they are structured and sold through dealerships.

PCP is one of the most common product types linked to car finance mis-selling. PCP agreements emphasise affordability (monthly payment) and can de-emphasise total cost of credit — which can make it easier for interest rate increases and commission-linked incentives to go unnoticed.

Why PCP is particularly affected

• Customers focus on monthly payments rather than APR comparisons
• Total cost of credit can be less obvious at point of sale
• Dealership incentives can influence the rate offered

Common PCP-related issues

• Inflated APR compared with what may have been available
• No clear explanation of how the interest rate was set
• No disclosure of commission arrangements
• Add-ons bundled into finance without clear consent

PCP mis-selling does not mean PCP itself is wrong. It means the way the agreement was sold may have been unfair or insufficiently transparent.

Hire Purchase agreements are also commonly affected. Because HP can feel more straightforward than PCP, customers are often less likely to question APR setting or whether the rate was negotiable.

Common HP-related issues

• Lack of transparency around APR
• Commission not disclosed
• No explanation of whether the rate was negotiable

Mis-selling is not always limited to the core finance agreement. Add-ons can strengthen the overall picture where costs were bundled or consent was unclear.

Common add-ons include:

• GAP insurance
• Extended warranties
• Service plans
• Paint and fabric protection

Issues can arise when:

• Add-ons were bundled without clear explanation
• Costs were financed without explicit consent
• Alternatives were not discussed

Related: Add-ons mis-selling explained →

There is no single year that automatically decides eligibility. However, much scrutiny focuses on agreements taken out before 2021, when Discretionary Commission Models (DCM) were banned.

That said, earlier agreements can still be relevant, and later agreements may still raise issues depending on disclosure and incentives.

Related: Which years are affected? →

Car finance mis-selling is not limited to small lenders or specific brands. Many major UK car finance providers use dealership distribution models, where incentives and commissions can exist.

The key point is not a lender’s name, but whether the dealer had discretion, whether incentives influenced the outcome, and whether the customer was informed.

Related: Which lenders are affected? →

In car finance, the dealer sells the finance, but the lender provides the credit. Both can be relevant: the dealer’s actions during the sale matter, and the lender’s oversight and agreement structure matter.

This is why complaints are usually directed to the lender, even if the problem arose at the dealership.

An agreement does not need to be active to be relevant. Closed agreements may still be reviewed if they fall within applicable time limits, or if the issue only became apparent later due to regulatory findings.

This section explains the complaint process at a high level. If you want a detailed, practical walkthrough with templates and examples, see our dedicated guide below.

Full step-by-step complaint guide →

Step 1: Identify the lender

Complaints are normally made to the lender, not the dealership. The lender is responsible for how the finance agreement was arranged and administered.

Step 2: Raise a formal complaint

You can submit a complaint directly to the lender, explaining why you believe the agreement may have been mis-sold. This usually involves:

• Providing agreement details
• Explaining what you were (or were not) told
• Requesting a review of commission and interest rate setting

Step 3: Lender review period

The lender normally has up to 8 weeks to investigate and respond. They may request further information during this time.

Step 4: Outcome or escalation

If you disagree with the lender’s response, you may be able to escalate the matter further, depending on circumstances and time limits.

Related: Step-by-step complaint guide →

There is no single “right” approach. Some people prefer to complain themselves, while others use specialist support.

Compensation in car finance mis-selling cases varies widely. There is no fixed amount and no guaranteed outcome.

Compensation may include:

• Refund of excess interest paid
• Interest on refunded amounts
• Adjustment of the agreement balance

What affects the amount?

• Size of the agreement
• Interest rate difference
• Length of the term
• Commission structure involved

• “If I paid everything on time, nothing is wrong.”Payment history does not determine whether mis-selling occurred.
• “If the agreement is closed, it’s too late.”Closed agreements may still be reviewed in some cases.
• “Everyone is entitled to compensation.”Eligibility depends on how the agreement was sold.
• “The dealer alone is responsible.”Lenders also have regulatory responsibilities.

Is every car finance agreement mis-sold?

No. Many agreements were sold fairly. Mis-selling depends on disclosure, incentives and the sales process.

Do I need paperwork?

Having documents helps, but lenders often hold copies of agreements and can retrieve them.

Will making a complaint affect my credit score?

Making a complaint alone does not affect your credit score.

How long does the process take?

Initial lender reviews typically take up to 8 weeks, though some cases take longer.

Related: Full FAQs →

Car finance mis-selling is not about blame — it is about understanding whether a financial agreement was fair, transparent and properly explained.

This guide is designed to help you understand the issue clearly, without pressure, before deciding what to do next.