Car finance transparency

How car finance commission works

When a dealer or broker arranges finance for your car, the lender usually pays them a commission. That's a normal, legal part of how car finance is distributed — it's how dealers are paid for the work of arranging the agreement.

What matters is disclosure. Since 28 January 2021 the FCA has banned “discretionary commission arrangements” — older commission models that let a dealer or broker adjust your interest rate to earn more commission. The rules on telling customers about commission were also strengthened. Today a dealer or broker should tell you that commission may be paid, and you're entitled to ask how much and how it's worked out. If you're not sure, just ask — a good dealer will tell you.

PCP vs HP explained

Hire Purchase (HP): you pay a deposit, then fixed monthly payments that spread the full cost of the car plus interest. When the final payment is made, the car is yours. Simple, and usually the cheaper route to outright ownership.

Personal Contract Purchase (PCP): you pay a deposit and lower monthly payments, because part of the car's value is deferred into an optional final “balloon” payment (the Guaranteed Minimum Future Value). At the end you choose: pay the balloon and keep the car, hand it back, or part-exchange and put any equity towards your next car. Lower monthlies, but you don't own the car unless you pay the final amount, and mileage and condition limits apply.

Neither is “better” — it depends on whether you want to own the car, how long you keep cars, and your mileage. Whichever you choose, the two numbers to compare across any quotes are the APR and the total amount payable.

The 2025 Supreme Court ruling and the FCA redress scheme — what it means for you

The ruling: in August 2025 the Supreme Court decided three linked cases about commission on historic car finance deals. It rejected the idea that dealers generally owe customers special legal duties when arranging finance — so most of the claims failed. But it upheld one customer's claim under the Consumer Credit Act's “unfair relationship” test, because of an unusually large commission (over half the total cost of credit) that wasn't disclosed, alongside paperwork and a dealer–lender tie that gave a misleading picture of independence.

The redress scheme: following the ruling, the FCA confirmed an industry-wide compensation scheme covering certain car finance agreements taken out between April 2007 and November 2024 — mainly where a discretionary commission arrangement was used, or where a large commission wasn't properly disclosed. It's designed to be free and largely automatic: eligible customers are due to be contacted by their lender, with no need to use a claims company.

Where it stands now: the scheme is facing legal challenges, and in July 2026 a tribunal paused parts of it — including compensation payments and letters — while those challenges are heard. Lenders must still log complaints and prepare in the background. Timings may change as the case progresses.

What you can do: if you think you were affected, you can still complain directly to your lender — it's free, and you don't need a claims management company or law firm (some charge over 30% of any compensation). If you're unhappy with the response, you can go to the Financial Ombudsman Service, also free.

This is a developing situation, last reviewed July 2026. Check the FCA’s motor finance page for the current position before acting.

How to shop around and compare finance

You never have to take the first finance offer you're given — including the dealer's. A few habits make comparison easy:

• Compare the APR and the total amount payable, not the monthly payment. A lower monthly figure can hide a longer term or a larger final payment.
• Get at least one quote of your own — from your bank, building society or another lender — before you visit the showroom. It gives you a benchmark.
• Ask about commission. Dealers and brokers should tell you commission may be paid; you can ask how much and how it's calculated.
• Check your credit file first. Quotes are more accurate, and a soft-search eligibility check won't affect your score.
• Match the deal to how you drive. On PCP, an unrealistic mileage cap can cost you at the end of the term.
• Take your time. You're entitled to take the paperwork away and read it — a fair deal today is still a fair deal tomorrow.

Frequently asked questions

Is it illegal for a dealer to earn commission on my finance?

No. Commission is a normal, legal part of car finance. What the FCA banned in January 2021 was one specific type — “discretionary” commission, where the dealer could raise your interest rate to earn more. Today dealers should disclose that commission may be paid, and you can ask for details.

Did the Supreme Court say all car finance commission was unlawful?

No — largely the opposite. In August 2025 it rejected the broad claims against lenders and dealers. It upheld one case on its specific facts: a very large, undisclosed commission combined with misleading paperwork made that customer's relationship with the lender “unfair” under the Consumer Credit Act.

Am I owed compensation?

Possibly, if you had car finance between April 2007 and November 2024 involving a discretionary commission arrangement or a large undisclosed commission. The FCA's scheme is designed so eligible customers are contacted by their lender — but parts of it are currently paused while legal challenges are heard, so timings are uncertain. Check the FCA website for the latest.

Do I need a claims company to get compensation?

No. Complaining to your lender is free, and the FCA's scheme is designed to work without claims companies, which can take a large slice of any payout (sometimes over 30%). If you're unhappy with your lender's answer, the Financial Ombudsman Service is also free.

Do I have to use the dealer's finance?

No. You can pay cash, use a personal loan, or arrange finance with any lender. Comparing the dealer's offer against a quote of your own is the single easiest way to know whether it's competitive.