Hidden interest in car finance: how it cost UK drivers thousands
If your car finance agreement included an interest rate that seemed high for your credit score — or if no one explained why the rate was what it was — you may have been charged hidden interest. Thousands of drivers across the UK are now discovering they paid more than they should have, simply because their broker or dealership earned extra commission.
These excess charges are at the heart of a growing wave of mis‑sold car finance claims. And in many cases, compensation is worth more than £1,000 per person — especially when agreements involved large balances or longer terms.
Why hidden interest is considered mis‑selling
Until 2021, car finance brokers in the UK were often allowed to adjust the interest rate on your loan. This practice, called a discretionary commission arrangement (DCA), let them earn more if they raised your rate — even when the lender approved you for a lower one.
In many cases, this interest bump wasn’t disclosed. That means:
- You paid more than necessary
- Your payments didn’t reflect your actual creditworthiness
- You weren’t told how the broker made their money
And that’s exactly what the Financial Conduct Authority (FCA) is investigating. It’s also why many finance contracts signed between 2007 and 2020 are now eligible for claims.
What does a typical payout look like?
Most successful claims fall between £1,100 and £1,600. This figure reflects:
- The excess interest paid over the life of the agreement
- Any admin or balloon fees added without clear explanation
- In some cases, associated overcharges on insurance or warranties
Larger claims — particularly those involving multiple vehicles or luxury brands — can exceed £4,000 or even £6,000.
Real UK payout examples (based on public case data)
- £1,400 – Manchester, 2017 Ford Fiesta: Undisclosed 3.5% interest markup via broker
- £2,300 – Leeds, 2018 BMW 1 Series: DCA overcharge plus unclear balloon fee
- £3,650 – Birmingham, 2015 Audi A4: Customer repaid £12,000 at a 10.9% APR, when 6.9% was more appropriate based on their credit profile
These examples show that payouts scale with the value of the agreement and the amount of interest charged unfairly.
How compensation is calculated
Here’s a simplified breakdown:
- The broker inflated your interest rate by X%
- That difference (e.g. 4% markup) was applied monthly over the agreement term
- The overpaid amount is added up, and interest on top may also be refunded
For example, on a £10,000 loan over 48 months, an extra 4% could mean you paid nearly £1,500 more than necessary. That amount forms the basis of your refund claim.
Does your finance agreement qualify?
You may qualify if:
- You financed a car between 2007 and 2020 (PCP or HP)
- No one explained commission or how your interest rate was chosen
- Your agreement was with a UK-based lender like Black Horse, Santander, or BMW FS
Even if your agreement has ended or you no longer own the vehicle, you can still make a claim.
Do I need proof or paperwork?
No. You don’t need to track down old contracts or loan statements. Most claim checkers can pull your car finance records using credit bureau access and vehicle finance databases. You’ll just need to provide your:
- Full name
- Date of birth
- Address history (especially if you’ve moved)
What if the lender says no?
Right now, lenders aren’t required to respond to complaints until 4 December 2025. That’s the FCA’s official deadline for reviewing DCA-related claims. But you should still start the process now — so you’re in the queue when responses resume.
If your lender denies wrongdoing after that date, you can escalate to the Financial Ombudsman Service. Legal partners and solicitors can also take over your case if needed.
How fast are refunds paid once approved?
Once a claim is accepted, refunds are usually paid within a few weeks. Delays can happen if the lender challenges the amount, or if extra documentation is needed. But in many cases, payouts move quickly — especially when handled by experienced legal teams or claims companies.
Start early. Get ahead of the rush.
The volume of claims is growing quickly. As more drivers discover they were mis‑sold finance, lenders and regulators are facing rising pressure. By checking your eligibility now, you avoid the risk of missing deadlines — and protect your place in line if redress becomes automated.
If you overpaid for your car finance, you deserve a fair refund. It only takes minutes to check — and you might be owed much more than you expect.
