Think you were mis-sold car finance? Here’s what to do next

Millions of motorists could be in line for a payout after being mis-sold car finance, with around £7.5bn set to be refunded.

If you’ve ever taken out a car loan, it’s worth checking whether you’re affected. Here’s what you need to know, and what to do next.

What’s the issue?

For years, some lenders paid commission to dealers or brokers for arranging car finance. In many cases, this wasn’t clearly explained and it could mean customers paid more than they should have.

As a result, millions of people may have been treated unfairly when financing a new or used car.

What is ‘the scheme’?

The Financial Conduct Authority (FCA) has introduced a compensation scheme to help affected customers get their money back.

It covers car finance agreements taken out over a 17-year period:

• scheme 1: arrangements taken between 6 April 2007 – 31 March 2014
• Scheme 2: arrangements taken between 1 April 2014 – 1 November 2024

Both schemes work in a similar way and are generally referred to as a single scheme.

Who will pay compensation?

Compensation will be paid by lenders, usually banks or finance providers, not the dealerships.

Will it cost you anything?

No. The scheme is completely free to use.

You don’t need to hire a solicitor or claims company to make a complaint.

How much could you get?

The amount varies, but most people will receive:

• the estimated amount they overpaid
• plus the commission involved
• plus interest

Average payouts are expected to be:

• £734 for older agreements (scheme 1)
• £881 for newer agreements (scheme 2)

Your exact amount will depend on your situation.

What types of cases are included?

There are three main types:

• Discretionary commission arrangements (DCA): where dealers could increase your interest rate to earn more commission, which is now banned.
• ‘Contractual tie’ cases: where a lender had priority to provide your finance.
• Excessive commission: where commission made up a large portion of the loan cost.

Will you get interest?

Yes. Interest will be added to your compensation based on the annual average Bank of England base rate plus 1%, with a minimum of 3% per year.

How to make a complaint

You can complain now, and it’s quick and free.

The FCA provides a template letter. You’ll need details such as:

• your name and date of birth
• current and previous address
• date of the agreement
• vehicle registration
• where and when you bought the car

There is also a free car finance reclaim tool on Money Saving Expert.

What if you don’t know who your lender was?

Try these steps:

• check old bank statements
• contact the dealership
• look at your credit report  credit file for free through agencies like Experian and TransUnion

• you can also try checking credit reference agency Equifax's Car Finance Checker app, which includes most car finance records back to 2007

What happens next?

• your lender should acknowledge your complaint
• they have 3 months to respond with a decision
• you then have 1 month to accept or challenge it
• if you accept, payment should arrive within 1 month

Stay safe

Lenders may ask for your bank details to pay compensation, but only share these if you’re sure who you’re dealing with. Never share passwords or PINs.

Not happy with the outcome?

If you disagree with the decision, you can take your complaint to the Financial Ombudsman Service.

If you’ve ever financed a car, it’s worth checking your paperwork. Making a claim is free, straightforward, and could put hundreds of pounds back in your pocket.