The Definitive Guide to PCP and Mis-Sold Car Finance Claims

mis sold car finance

Buying a car on finance has become very common, but it can also be a tricky process to navigate. Unfortunately, with inaccurate information and hidden commissions, many face largely unaffordable car finance for their troubles. 

The Consumer Credit Act of 1974 protects car buyers like you from unjust situations, but it can still be a challenge to get a proper grasp on everything. Could your mis-sold car finance claim recover thousands? We’re here to help you find out.


The Basics of PCP and Mis-Sold Car Finance Claims

When you visit a car dealership, you may purchase a new car outright or acquire a personal loan to buy it and avoid the upfront payment. A motor finance deal may let you own it in full once the loan term ends. In other cases, your finance agreement will take back the vehicle at the end of the term because the lender structured your deal as a lease agreement—you hired rather than bought the vehicle. There are a range of car finance options which we’ll walk you through in this section.


Different types of car finance agreements include the following:

  • Hire purchase agreement: This arrangement lets you pay off the value of your car in monthly payments. When you pay off the loan, you will own the vehicle, which is something car buyers will always have to consider when choosing between PCP or HP.


  • Personal contract purchase: A PCP is a common car finance choice. Taking out a car on PCP finance agreement doesn’t let you pay off the car’s full value, nor will you own it at the end of the car finance deal (unless you make a substantially large final payment).

  • Personal contract hire purchase: This loan represents a lease similar to an extended vehicle rental agreement. You won’t own the vehicle you’re currently driving if you buy it using a personal contract hire purchase.

From a legal standpoint, if you purchase a car using finance options like PCP agreement, the car salesperson and finance provider must give you all the important details. Without the fine print, you can’t decide whether the loan type and terms are right for you. However, despite this requirement, car dealerships and finance companies don’t always play ball and aren’t treating customers fairly when it comes to PCP finance agreements.


Am I Eligible for a Mis-Sold Car Finance Compensation Claim?

Are you aware that the Financial Conduct Authority (FCA) has banned discretionary commission arrangements as of January 2021? This practice allowed car dealerships to charge commission on every car finance contract they sold, usually based on charging customers higher interest rates. It was a way for any dealership to earn money at your expense by charging you a higher interest rate.

It’s easy to see why the authorities have done away with this practice to save consumers from an unnecessary burden for the privilege of vehicle ownership. Even if no car dealer openly admits to the injustice of this widely accepted practice, the cat is out of the bag. Since the ban, the Financial Ombudsman Service (FOS) has received tens of thousands of complaints about mis-sold finance packages or overpayments. 

The FCA has begun to investigate the matter to see whether millions of people in the UK have valid grounds for these legal claims. The agency will determine if a compensation scheme might be necessary for lenders and dealerships who mis-sold car finance plans before the 2021 ban and if they must make additional payouts.


Eligibility Requirements For Claiming Mis-sold Car Finance

The courts may consider a consumer a victim of car finance mis-selling tactics if car dealers have given them bad advice or acted negligently. Does your personal contract purchase agreement contain hidden commissions that your car salesperson didn’t disclose or a higher interest rate than your original quote? If so, you might be overpaying on the car loan.

The FCA is still investigating, so the eligibility for these claims remains unclear. You might still qualify, considering the types of complaints the FCA is investigating.

  • Did you buy a vehicle using car finance before the discretionary commission ban on 28 January 2021?


  • Was your agreement one of the personal contract purchase contracts or hire purchase contracts?


  • Did the dealership that sold you the car expect to secure a commission based on your interest rate?

If these situations apply to you, claim compensation for mis-sold car finance might be within reach.


Cases Where Your Car Finance Agreement May Have Been Mis-Sold


mis-sold car finance


  1. The salesperson did not fully disclose the interest rates and how they are calculated. Misleading interest rates, inflated prices, and a poor explanation of their calculations are car finance mis-selling practices.

  2. You weren’t informed about the total cost of the agreement over its entire term. You should have adequate information about all the associated costs of your PCP agreement, including the interest rate, monthly payments, commissions, and add-ons.


  3. The terms and conditions of the finance agreement were not clearly explained to you. When car dealerships or loan brokers rush their lending process, there could be missed information about pertinent details, such as termination clauses or hidden fees.


  4. You were not made aware of any commissions or fees charged by the dealer or broker. By charging you a higher interest rate on your deal, car finance brokers earn a larger commission.


  5. The finance option recommended was not suitable for your financial situation. Before buying a new or used car, you have the right to pursue the finance option that works for your financial position and living situation. Not all options will be ideal.


  6. There was no proper affordability check conducted before the agreement was signed. Have the salespeople or lenders failed to gather sufficient financial and income information? Were shortcuts taken during the affordability procedures for a quick sale?

  7. You were pressured into making a quick decision without enough time to consider. Aggressive sales tactics can make you feel obligated to agree to the lender’s car finance terms without fully understanding them.

  8. Key details about the ownership of the car at the end of the agreement were omitted. If you assumed you were agreeing to a standard hire contract deal but received a PCP finance deal, you may have a case.

How Is Compensation Calculated for Mis-Sold PCP Car Finance Claims (UK)?

There is no way to know the exact amount attainable through a successful PCP claim until all parties settle. While some car dealerships routinely practise tactics like overcharging unsuspecting customers, other car dealers simply fail to inform people about the PCP agreement details.

If you decide to pursue a mis-sold car finance claim, the exact amount you can claim for mis-sold car finance will depend on the following:

  • Car finance loan size: High-value loans tend to yield a higher commission payout.

  • Interest rate: Drastic discrepancies between quoted interest rates and fair interest rates draw more attention.

  • Car finance agreement duration: Was it an old or new car loan? You may be able to pursue more if you spent several years paying off the loan.

Example Loan

Let’s consider a car finance agreement for a new Ford Fiesta worth around £22,779. If the finance agreement from the car dealership included a 15% hidden commission, you would have unknowingly paid in excess of £3,400 for your car. Additionally, if the car salesperson quoted an interest rate of 8.4% on a car that should have garnered a rate of 5.4%, you would have overpaid interest by £850 and you could be owed mis-sold car finance compensation.


How Much Can You Claim if You’ve Been Mis-Sold a Car Finance Agreement?

Factors That Affect Your PCP Reclaim

These situations can’t always have definitive resolution processes that outline what a standard car finance payout will be. It’s also apparent in the United Kingdom and elsewhere that many victims of vehicle finance mis-selling practices don’t realise their contracts warrant overpayment issues. 

Even if resolutions existed to cover all types of PCP finance mis-selling, the claim will depend on factors such as:

  • Changes to your interest rate


  • The agreement’s precise wording


  • The car loan amount


  • The duration of the car loan agreement


Factors That Change How Much You’ll Receive After a Settlement

In addition, PCP finance claims consider your expected financial situation if the mis-selling didn’t occur. Would you likely have acted differently if you had had all the relevant information before signing the agreement? 

What you receive from a settlement or court decision will align with how much damage or loss you have experienced due to PCP finance mis-selling. For example, you could file a PCP finance claim against the initial interest rate quote when citing the rate you should have had. You could also cite the money you would have saved had the dealer informed you about a credit plan more beneficial to your financial situation.

Lastly, you could file to refund overcharged amounts, adjust your credit file, or waive fees if you give back the car.


How To Make a Claim for Your New or Used Car

Before submitting a car finance mis-selling claim online or by phone, you should speak with your loan lender or credit broker first. Sometimes, mis-selling is accidental. In that case, your service provider may decide to correct things when you bring your concerns to their attention.

Here in the UK, lenders will usually have eight weeks to respond to a borrower’s complaint. If you’re unhappy with their initial response or you don’t hear anything from them, you are at liberty to file a formal complaint with the Financial Ombudsman Service. When submitting a complaint, you’ll need to provide the following:

  • Details about your concerns over possible mis-selling practices


  • Relevant documents

  • Other evidence to support your claims


After your lender’s final response, you will have six months to submit a complaint and the corresponding evidence. After that, it takes up to three months for the Financial Ombudsman Service to assess your case. It may take time to assign your complaint to a caseworker and review the documents you submit.


Escalating Denied PCP Car Finance Claims

If the FOS denies your claim, you can escalate the matter to the small claims court. It’s better to hire a mis-sold car finance solicitor for professional legal guidance if:

  • You cannot afford your car finance (PCP) agreement


  • You weren’t treated fairly, considering your financial situation

  • Your contract includes excess mileage charges or an annual mileage cap you were unaware of


  • Your salesperson didn’t fully explain the terms and conditions


  • You discover a hidden commission

A knowledgeable solicitor can help you acquire sufficient documentation to prove your car finance mis-selling claim, file complaints to the right parties within the designated timeframes, and more. Representation makes the claims process smoother and could help you claim a refund or pursue a fair settlement.

We’re on Your Side

Do you suspect your car finance loan conditions qualify you for a mis-sold finance claim? Sandstone Legal‘s skilled team could help you pursue a claim on a “no win, no fee” basis. 

Get in touch with us today and we’ll see if we can help you out.

The Different Ways You May Have Been Mis-Sold

People pursue PCP claims for various reasons. However, a car salesperson, car dealership, and company linked to car finance use different tactics that all constitute a bid to mis-sell car finance.

Here are common UK car finance mis-selling situations to consider before you pursue legal action:

A Lack of Proper Explanation of Terms and Conditions

Your car finance agreement will include your loan’s fine print. Under the law, the salesperson would be responsible for going over those conditions with you to ensure you’re making an informed decision surrounding your vehicle financing options. 

You may be a victim of car finance mis-selling if the salesperson has not adequately explained these aspects of your loan agreement:

  • Your loan’s interest rates and how the finance company calculates them

  • The total cost of your finance agreement

  • The contract term

You should gather the information you need verbally or in writing.


Undisclosed and Hidden Commissions on Your Finance Deal

A hidden commission is what a car salesperson receives for securing your car through a finance deal or takes to the bank without notifying you as the buyer. The FCA reports that thousands of consumers in the United Kingdom don’t know about these transactions, which is part of why things have changed.

Notably, it’s not improper to generate a commission. However, some agreements include a higher interest rate purely to obtain bigger commission payouts. If lenders systematically incentivised brokers to participate in car finance mis-selling to earn more money without informing customers, there are concerns.

Lack of a Proper Affordability Check

Prior to signing your car finance agreement, you’ll undergo an affordability check via a finance provider. The affordability check ensures that you can repay the loan. However, if you could afford the loan when you applied for it but can no longer make timely payments due to a change in circumstances, you’re not a victim of car finance mis-selling.

You might be able to claim compensation if:

  • You struggle to make monthly car payments

  • You get into debt to make your car payments

  • You owe more at the end of your deal than you expect

The Finance Options You Were Offered Weren’t Suitable for You

You may have been mis-sold car finance if your car dealer didn’t explain other financing options before your purchase. Sometimes, salespeople employ high-pressure sales tactics instead of putting customers’ interests first. 

However, a seller or lender must explain all options, costs, and fees before the consumer signs anything. For example, a hire purchase might be better for you than a PCP, and the salesperson should explain both options in-depth to help you make an informed decision about your car purchase. If not, you could claim compensation through a PCP reclaim.

Car Dealerships Pressuring You Into a Quick Decision

If a car dealership wants to solidify a sale quickly, they might not provide sufficient information about the finance agreement. After all, the more information sellers provide, the longer it could take for a consumer to agree to the terms.

For example, beyond aggressive upselling to add unnecessary or unwanted products or services to the package, car salespeople and finance companies may promote a limited-time offer to rush your decision. These sellers may also have promotions with lower interest rates or monthly payments that are unrealistic but entice you to commit sooner.

Details About Who Owns the Car at the End of the Deal Weren’t Made Clear

A surprisingly common problem for potential PCP claims involves the confusion over who owns the vehicle at the end of the term. Questions also arise about how people can become car owners after financing their purchase.

So, before signing your finance agreement, you should know whether your payments are going toward the value of the car or whether you’re only paying toward a lease. Do you have to put down a balloon payment at the end to become the car’s owner? Can you reasonably afford that payment?


Frequently Asked Questions About Mis-Sold Car Finance & PCP

Here are a few questions that might make things clearer if you are considering lodging a claim due to mis-sold vehicle finance matters:

Who Can Claim Compensation for Mis-Sold Car Finance or a Personal Contract Purchase Deal?

Anyone could claim compensation if they purchased a vehicle through PCP car finance after 2007 and suspect they have grounds for a PCP mis-selling case. You may be eligible to claim back compensation if your car dealer didn’t outline all available finance options or contract details during the sale of the car. 

Eligibility also includes situations regarding a hidden commission, unclear interest charges, and the following situations:

  • Filing a claim for multiple vehicles simultaneously

  • Filing a claim for new cars or second-hand cars from a finance purchase

  • Filing a claim for any vehicle, including a van or truck

  • Filing a claim for a car finance agreement that is active or has ended

How Much Compensation Could You Seek From Mis-Sold Car Finance?

The amount you could seek from mis-sold vehicle finance claims or PCP mis-selling will depend on your original finance or PCP agreement. 

Many people succeed in these claims to recover more than expected, so it’s worth looking into.

Does PCP Finance Come with Many Disadvantages?

Yes, PCP finance may come with disadvantages, even though it grants you reasonable monthly payments with flexible car finance agreement terms. For example, you may become financially responsible for car damage beyond typical wear and tear or susceptible to high interest rates if you have a low credit score. 

Another possible disadvantage of PCP car finance is the high balloon payment, which is a higher-than-typical one-time payment to buy the car at the end of a loan term. That lump sum is usually expensive.

Are Finance Companies Responsible for Divulging Information About You?

Yes, the law holds your finance provider responsible for divulging information they have about you if requested to do so. These companies are also legally required to outline specific factors within your car finance agreement’s terms and conditions, such as an undisclosed or hidden commission or excess mileage limit. 

The finance provider may email you the information you’re requesting regarding your complaint or query or send it by post.

How Long Does a Mis-Sold Car Finance Claim Take?

Each mis-sold car finance case is slightly different, and its timeline may vary. Though one car dealer or finance company may agree that their high-pressure sales tactics or poor advice contributed to car finance and PCP mis-selling, others won’t budge.

If the car dealer or finance provider takes responsibility, you could get PCP compensation within a few months. However, if these entities dispute liability, your claim could drag on for 18 months or longer to settle. Working with a reliable mis-sold car finance solicitor may expedite the process towards negotiating settlement terms on your behalf.

What’s an Effective Way To Formally Complain About a Car Finance Company?

According to the Financial Conduct Authority, an effective way to formally complain about a car finance company is to go to the Financial Ombudsman Service. Are you possibly a victim of a discretionary commission arrangement, where a lender has let the finance broker charge you higher interest rates for car finance to earn themselves commission? The FCA banned the use of a discretionary commission arrangement in 2021, but complaints still arise.

If you’re unsatisfied with your finance services or think you have been mis-sold car finance, complain directly to the FCA and FOS. The FCA plans to temporarily suspend the eight-week deadline for car finance providers to respond to complaints regarding this type of commission (until 25 September 2024). You’d normally complain to the Financial Ombudsman Service within six months of getting a response from your provider, but if the finance company responds to your complaint between 12 July 2023 and 20 November 2024, the timeframe is now 15 months.

Must You Return Your Vehicle After Successfully Pursuing a Mis-Sold Car Finance Claim?

After successfully pursuing mis-sold vehicle finance claims (you win your claim), you do not typically have to return the vehicle to the car dealership. 

However, there’s the possibility that you may not receive your entire compensation amount if you’ve been behind on your finance payments up until that time. While you may be able to keep driving the vehicle, a portion of your compensation award may need to go toward bringing your account up to date.

How Can You Make the PCP Claims Process Move Faster?

You can make the PCP claims process move faster by recalling as many details as possible about your car finance agreement and everything that led up to signing it. Depending on your specific situation, settling your mis-sold car finance case could take several months. 

It helps if you have relevant documents to submit as evidence for your claim, but your solicitor can usually request these documents from the finance company or car dealer if you do not have them on hand. Note that making these additional requests may delay things.

Why Do Motor Dealers Offer PCP Car Finance Agreements?

Car dealers use car finance PCP to entice customers who don’t want to drive that same car for years on end. 

Many of the used and new cars on the road were PCP deals because they offer lower monthly payments. It can be a great option to upgrade your vehicle.


No Win, No Fee Claim Solicitors To Help You Through Bad Car Finance Agreements and More

Was your car finance mis-sold? Are you ready to seek compensation relating to PCP or a mis-sold car finance deal now that you’re aware of your rights? Our car finance solicitors handle these types of cases on a daily basis and would be happy to tell you more about your prospects for claim compensation.

Sandstone Legal takes a client-first approach to providing legal services on a “no win, no fee” basis. For more information or a reliable guide to car finance, contact Sandstone Legal or start your claim today.

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