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Car finance compensation payments explained
Millions of motorists may be eligible for compensation after being mis-sold car finance, but most are unlikely to receive payments before 2027. The Financial Conduct Authority (FCA) expects average payouts of about £829, while legal challenges due to be heard in February 2027 have delayed the scheme.
The proposed scheme covers around 12 million loans taken out between April 2007 and November 2024, about 37% of agreements in that period, and could cost £9.1bn including administration. Mis-selling included undisclosed commission linked to interest rates, excessively high dealer commissions and exclusive lender arrangements that affected the information customers received. People who have already complained do not need to act; others are advised to contact their lender directly and watch out for compensation scams.
In short
- Average compensation is expected to be about £829 per mis-sold agreement.
- Legal challenges have delayed most payments until at least 2027.
- The FCA advises customers to complain directly to their lender.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Supporters of compensation argue that customers deserve redress when lenders or dealers failed to disclose commissions or arrangements that could have influenced the cost or terms of a loan. A broad scheme could offer a consistent route to repayment for millions of people, including those who might not have complained, while reinforcing expectations of transparency in financial sales.
The case against
Critics may argue that the scale and cost of the proposed scheme risk imposing large liabilities on lenders for past practices whose effects on individual customers may vary. They may favour resolving claims through the courts or more targeted assessments, so compensation reflects demonstrable harm and avoids unnecessary costs that could ultimately be passed on to customers.
Explained simply
Car finance lets people spread the cost of buying a vehicle through a loan arranged by a lender, often with help from the dealer. In some agreements, dealers received commission from lenders, and the amount could depend on the interest rate or other terms offered to the customer.
The Financial Conduct Authority (FCA) regulates financial firms and sets rules for how they treat customers. It has been examining whether some drivers were given enough information about commissions and whether those payments affected the deals they were offered.
The issue matters because the agreements span many years and could affect a large number of motorists. Any compensation process involves lenders, customers and the FCA, which must work out who was harmed and how much they may be owed.