What is mis-sold car finance and could you be due thousands in compensation?

If you bought a car, van, motorbike, motorhome or caravan on finance, you could be among the millions of consumers eligible for a significant refund.

The UK financial regulator, the FCA (Financial Conduct Authority), is currently carrying out an investigation into the scale of mis-sold vehicle finance, with millions expected to be in line for refunds.

The FCA estimates that hidden PCP and HP finance commissions have cost consumers more than £1,100 in additional interest charges on a typical £10,000 finance agreement.

It’s due to set out its next steps in May 2025, and the results could entitle millions of drivers across the country to thousands of pounds in compensation.

Drivers who bought multiple vehicles on finance and those who financed larger amounts are expected to be due the most back.

Martin Lewis, consumer champion, has compared the potential scale of payouts to the PPI scandal – where firms were forced to refund billions to mis-sold customers.

But, to make a legitimate claim, you’d need to have taken out a PCP (Personal Contract Purchase) or HP (Hire Purchase) agreement through a car garage, dealer or broker.

We explain how these agreements work and how to quickly find out if you can claim compensation.

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What is an HP agreement?

Under a HP agreement, you’ll work towards one objective – to own the vehicle.

Normally, you’ll pay a deposit, which is about 10% of its value, and you’ll finance the remainder.

The remainder is then split into monthly repayments over a fixed number of months, e.g. 12, 24, 36, 48. Once you make the final repayment, you’ll own the vehicle.

It’s only at this stage that you’ll normally pay a transfer fee to put the car in your name.

Unlike buying a car with a personal loan, under an HP agreement your lender will have security of the vehicle until the repayment plan is complete.

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What is PCP car finance? 

PCP finance allows you to drive a vehicle with lower monthly repayments than HP finance, but you won’t necessarily own the vehicle at the end of the repayment period.

Under a PCP agreement, your lender will consider how much your vehicle is expected to drop in value over a specified timeframe to determine your monthly repayments.

Like other forms of financing, you’ll need to maintain your repayments or risk damaging your credit score.

Once your PCP finance ends, you can decide what to do with the vehicle.

You can pay a “balloon payment” to own the vehicle, trade it in and buy a new vehicle using a new PCP agreement, or hand it back to the lender and walk away.

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Have you taken out either of these types of finance agreements? 

Have you bought a car, van, motorhome or caravan using PCP or HP finance? If so, you could be a victim of mis-sold vehicle finance and be eligible for a significant refund.

Until 2021, many car dealers operated under “discretionary commission arrangements” (DCA), allowing them to earn commissions based on the interest they set for your finance.

Generally, the higher the rate, the more commission your dealer earned, in addition to their markup on the vehicle’s sale price – which incentivised them to charge customers more.

The FCA banned the practice as of 28 January 2021, and anyone who took out PCP or HP finance before this date is urged to check whether they are affected.

Even if your agreement wasn’t affected by a DCA, it’s very likely the dealer treated you unfairly because of an “undisclosed commission” from the finance company.

A landmark Court of Appeal ruling in October 2024 found it was unlawful for dealers to receive a commission from a lender unless you, the customer, were properly informed and consented to the payment – potentially paving the way for up to an estimated £30 billion in refunds.

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How to claim compensation

To see if you’re eligible for compensation, start your claim with Get Your Refund. 

Their team of claim specialists and legal partners have been fighting for the rights of consumers for over a decade. As a regulated law firm, you can be assured that your mis-sold vehicle finance claim is in safe hands.

Get Your Refund provides their service on a no win, no fee basis. Allow them to pursue your potential claim to its conclusion, and there’s no charge if your vehicle finance claim is unsuccessful.

Their fees are some of the lowest, if not the lowest, in the industry, at just 25% plus VAT of any refund amount.

While you don’t need to use a legal representative and can complain directly to your lender and refer your complaint to the Financial Ombudsman Service for free, Get Your Refund believes that it pays to have an experienced team assisting with your claim.

Start your claim – Get Your Refund