Updated: 13 October 2025

Originally Published: 09 April 2025

Content Summary

Millions of UK drivers could soon be owed money after years of mis-sold car finance and hidden dealer commissions.

The Financial Conduct Authority (FCA) is consulting on a national compensation scheme that could repay billions across PCP and HP agreements sold between 2007 and 2024.

This guide explains how to check mis-sold car finance, identify red flags, and prepare your car finance claims or PCP claims ahead of 2026.

You will also find practical advice from our cluster guides on understanding hidden fees, knowing what to ask before signing, and protecting yourself from future mis-selling.

Introduction: Why Mis-Sold Car Finance Matters in 2025

Car finance has quietly become part of everyday life in the UK. For many drivers, it is the default way to buy a car. Over the past twenty years, Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements have made driving a new vehicle feel straightforward, with manageable monthly payments and clear choices at the end of the term.

Beneath that simplicity, the system went wrong. Between 2007 and 2024, millions of people took out car finance agreements that were mis-sold, which means they were not given full or fair information about how their deals were structured.

Many drivers did not know that their dealer or broker could earn higher commissions by increasing their interest rate. Others were unaware of balloon payments or the real total cost of credit. Some were not given enough time or support to understand the paperwork.

Now, the FCA has set out how it plans to put things right. Its 2025 consultation proposes a nationwide motor finance compensation scheme to return money to affected customers. Around 14 million agreements may qualify, with average payments of about £700 each and the total redress could reach £8.2 billion [1], making this one of the largest financial redress programmes in UK history and placing the mis-sold car finance UK scandal alongside PPI in scale.

For many households, that could mean hundreds or thousands of pounds back from a deal that was never explained fairly.

A legal turning point arrived in August 2025, when the Supreme Court ruled that keeping commission payments secret can, by itself, create an unfair relationship under the Consumer Credit Act 1974 [2]. That decision gave the FCA the certainty it needed to move forward with a consistent national scheme to resolve what has become known as the car finance scandal UK.

The FCA’s consultation runs until 18 November 2025, with final rules expected in early 2026 [3]. It covers regulated car finance between 6 April 2007 and 1 November 2024, including both HP and PCP.

For drivers, this is an important moment. By acting early, reviewing paperwork, checking agreements, or submitting a complaint, you can be ready when the scheme launches in 2026.

This guide explains how car finance mis-selling happened, how to check mis-sold car finance, and what to do next if you plan to make a car finance claim or PCP claim in 2025.

Why Mis-Sold Car Finance Matters

Mis-sold finance is not only a technical breach of the rules. It is about people and money they could not spare. Most of us trust the person across the desk. We assume our interests come first. Many did not realise that a broker could adjust the rate and earn more commission, even when a lower rate was possible.

That gap in transparency has had real consequences.

The Real-World Impact

Unexpectedly high repayments

The monthly figure felt manageable at the start. Later, you realise the rate was higher than it needed to be. Over years, that added up.

Surprise balloon payments

Many PCP customers reached the end of a term and discovered a larger-than-expected final amount. Some had to refinance. Others handed the car back when they had planned to keep it.

Refinancing cycles

Rolling one agreement into the next can feel like relief in the moment. It also increases the total interest across several deals.

Credit damage

If affordability checks were weak, it is not surprising that some people struggled. Missed payments can linger on a credit file for years.

Loss of trust

Finding out later that your rate could have been lower shakes confidence. The sale might have felt friendly but the numbers tell a different story.

Stress at home

When a car payment eats into the food shop or the energy bill, the pressure is real. This is why the FCA’s response matters.

What This Guide Covers

By the end of this guide, you will know how to:

• Understand your rights under UK consumer law
• Recognise warning signs of mis-sold car finance UK
• Follow clear steps on how to check mis-sold car finance
• Identify hidden costs and unclear terms
• Explore your options for car finance claims and PCP claims
• Stay up to date with the FCA investigation and the Supreme Court ruling

The goal is to help you make informed decisions and act confidently.

A Short History of Car Finance in the UK

The Rise of PCP

Personal Contract Purchase (PCP) grew popular in the early 2000s as a flexible alternative to traditional car loans [4]. Customers paid for the car’s depreciation through monthly payments. At the end of the term, they could return the car, trade it for a new one, or pay a final balloon amount to keep it.

That flexibility helped PCP become the default choice for new car buyers. By the late 2010s, more than 80 per cent of new cars in the UK were bought on finance, most of them on PCP agreements [5].

Where Things Went Wrong

PCP opened the door to conflicts of interest. Most finance was arranged by dealers or brokers who received commissions from lenders. Under Discretionary Commission Arrangements (DCAs), a broker could increase the customer’s interest rate and earn a larger commission. Many customers were never told this.

Two people with similar credit scores could therefore pay very different rates, not because of risk, but because of commission. That gap sits at the heart of car finance mis-selling.

Regulation Catches Up

The FCA banned DCAs in 2021 [6]. By then, millions of agreements had been written under those terms. In 2025, after the Supreme Court confirmed that hidden commission makes agreements unfair, the FCA had a firm legal basis to introduce a national redress scheme.

Key Red Flags in Car Finance Agreements

If you suspect your car finance was mis-sold, look for these warning signs.

High or unexplained interest rates

Were you shown a monthly payment figure but not the full APR? Did your rate seem high for your credit rating?

Unclear or rushed paperwork

Did the dealer skim over key sections? Were penalties or fees hidden in small print? Did you feel you had time to read everything properly?

Pressure to sign immediately

Were you told the offer would disappear if you did not sign that day? Pressure often hides poor value.

Hidden commissions

Did the dealer seem to control the interest rate more than the lender? Were you told how the broker was paid or whether commission might affect your rate?

Weak affordability checks

Were your income and expenses properly assessed? If repayments were a stretch from the start, affordability may not have been checked correctly.

If any of these apply, your agreement could qualify for redress under the FCA’s scheme.

📖 Further reading: If you are planning to take out new finance, our guide Questions to Ask Before Signing a Car Finance Agreement shows how to compare offers confidently, what to query in the paperwork, and which red flags to challenge at the dealership.

How to Check Mis-Sold Car Finance

Use this simple step-by-step method if you think your agreement was mis-sold.

Step 1: Request your documents

Ask your lender for copies of your credit agreement, pre-contract information and any commission disclosures. Lenders are required to keep records and can supply them.

Step 2: Compare what you were told

Write down what the salesperson said about interest, fees, the balloon amount and options at the end of the term. Compare those notes with the contract. Differences help your case.

Step 3: Collect your evidence

Keep quotes, emails, texts, payment schedules and bank statements. Store them in one place so your timeline is easy to follow.

Step 4: Create a timeline

Note when you signed, when the vehicle was handed over, and when you noticed the problem.

Step 5: Match red flags

Compare your experience with the warning signs listed above.

Step 6: Choose your route

Complain directly to your lender

Escalate to the Financial Ombudsman Service if you are unhappy with the response

Ask an authorised claims management company or finance claims expert to manage the process for you

Raising your complaint now helps secure your place before the FCA’s redress scheme starts in 2026.

Understanding Hidden Costs in Car Finance Deals

Many finance deals look affordable at first, then end up costing far more than expected. Hidden or poorly explained costs are one of the clearest signs of mis-sold car finance UK.

Early repayment fees

If a charge for settling early was not made clear, you may have grounds for a complaint.

Balloon payments

In a PCP, the balloon or guaranteed future value is the lump sum to keep the car. If it was not explained in clear language at the start, that supports a PCP claim.

Mileage and wear-and-tear

End-of-term fees can surprise drivers. If return standards or mileage pricing were not set out at the start, those charges can be challenged.

Recognising these costs is essential to how to check mis-sold car finance and to avoid repeating the same mistakes.

📖 Further reading: See Understanding Hidden Fees in Car Finance Deals for a plain English guide to add-ons, admin fees, optional products and how they change the total you pay.

The FCA’s Consultation and What Happens Next

The FCA’s consultation on the proposed redress scheme opened in October 2025 [7]. It sets out how compensation will be calculated and when consumers can expect to receive payments.

Key Dates

• 4 November 2025: Deadline for comments on extending complaint handling periods
• 18 November 2025: Deadline for feedback on the redress scheme
• 4 December 2025: FCA confirms whether complaint deadlines will be extended
• Early 2026: Policy statement and final rules expected
• Later in 2026: Compensation payments begin

Complaint Handling Extension

To keep outcomes consistent once the scheme begins, the FCA plans to extend the deadline for lenders to provide final responses to motor finance complaints until 31 July 2026. This gives firms time to prepare and to process cases fairly.

The extension does not apply to car leasing agreements, which fall outside the unfair relationship legislation. Leasing firms must begin sending final responses from 5 December 2025.

Why PCP Claims Are Often Strong

PCP is more complex than a simple loan. It includes variable interest, a large final payment, and several end-of-term choices. When these features were not explained clearly, it created confusion and unfair outcomes.

Common problems include a balloon payment that was not highlighted properly, uncertainty about ownership options at the end, and interest rates affected by undisclosed commission. If this sounds familiar, your case may be strong under the FCA’s redress scheme.

Expected Outcomes from the FCA Scheme

If the proposal is approved, successful cases will likely include:

• Refunds of overpaid interest
• Repayment of hidden commissions
• Correction of inaccurate credit records
• Modest payments for distress where appropriate

The FCA expects about 85 per cent of eligible consumers to participate. That would total £8.2 billion in redress. If every eligible person takes part, compensation could reach £9.7 billion, and the total cost to lenders may be close to £11 billion when administration is included.

How to Protect Yourself in 2025 and Beyond

While the FCA takes action, there are straightforward steps you can take to avoid future mis-sold finance.

• Read every section of the agreement before signing
• Compare more than one quote and check both APR and total repayable
• Ask if the dealer receives commission and how it affects your rate
• Take time to decide, because a fair offer does not disappear overnight
• Keep copies of all documents and messages
• Report suspected mis-sold car finance to your lender or to the FCA

If you would like support, regulated claims management companies and finance claims experts can trace old agreements and manage your car finance claims professionally.

📖 Further reading: For practical prevention steps, read How to Protect Yourself from Mis-Selling. It explains how to question lenders, request clear disclosures, and safeguard your finances before you agree to any car loan.

Frequently Asked Questions

Can I claim if my agreement has ended?

Yes. Complaints focus on how the finance was sold, not whether it is still active.

Will a complaint affect my credit score?

No. If your complaint is upheld, unfair credit markers should be removed.

Do I need my paperwork?

Not always. Lenders keep records and can provide copies on request.

How much could I get back?

The FCA expects an average payout of around £700 per agreement, although some people will receive more or less.

Do I need to go to court?

Not usually. Most cases will be resolved by lenders, the Financial Ombudsman Service, or the FCA scheme.

Can I claim for more than one agreement?

Yes. Include each PCP or HP contract with dates and references.

What if the dealer no longer exists?

Responsibility usually sits with the lender or its legal successor.

How do I start?

Request your agreement, check the APR and total repayable, and look for any mention of commission. Then submit a complaint or ask a regulated claims firm to support you.

Conclusion: Protecting Your Rights in 2025

The car finance scandal shows how easy it is to be kept in the dark about costs and commissions. Between 2007 and 2024, millions of agreements were not explained fairly. The Supreme Court confirmed that secret commissions can be unfair. The FCA’s proposed scheme is designed to put money back in people’s pockets and restore trust.

If you had PCP or HP in that period, act now. Check your paperwork. Raise your complaint. Make sure your lender has your current address and email.

You can claim directly for free. If you prefer support, a trusted claims management company such as Reclaim247 can trace old agreements and manage your car finance claims or PCP claims from start to finish.

Consumer rights exist to protect you. Knowing those rights, and using them, is how you reclaim what you are owed.

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References:

1. Around 14 million agreements may qualify, with average payments of about £700 each and the total redress could reach £8.2 billion - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme

2. A legal turning point arrived in August 2025, when the Supreme Court ruled that keeping commission payments secret can, by itself, create an unfair relationship under the Consumer Credit Act 1974 - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf

3. The FCA’s consultation runs until 18 November 2025, with final rules expected in early 2026 - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme

4. Personal Contract Purchase (PCP) grew popular in the early 2000s as a flexible alternative to traditional car loans - https://motorway.co.uk/sell-my-car/guides/pcp-car-finance-ultimate-guide

5. By the late 2010s, more than 80 per cent of new cars in the UK were bought on finance, most of them on PCP agreements - https://www.autoexpress.co.uk/leasing/90789/car-finance-explained-simple-guide-paying-your-new-car/pcp-personal-contract-purchase

6. FCA banned DCAs in 2021 - https://www.fca.org.uk/news/press-releases/fca-ban-motor-finance-discretionary-commission-models

7. FCA’s consultation on the proposed redress scheme opened in October 2025 - https://www.fca.org.uk/publication/consultation/cp25-27.pdf