Reclaim mis-sold car finance loans for free
If your finance agreement was unfair, you could get £1,000s back
Nine in 10 customers pay for new cars on finance (and many used-car buyers do, too). While lots of people don't have any issues with their contract, others have been mis-sold finance packages that they couldn't afford, or that they paid over the odds for. With compensation for those affected potentially running into the £1,000s, if you've taken out car finance – even if you've paid it off – check NOW if you can claim...
1-min read to start your car finance complaint
If you more or less know what you're doing, we've summarised the key points and included quick links to our reclaim tool and templates. Otherwise, read our full guide below for detailed help, before submitting your complaint.
1. What can I complain about? If you're not sure, see the full list of reasons you may have been mis-sold. But a couple of the main ones are:
- Paying over the odds due to commission. You might've been sold a deal that was more expensive because your dealer stood to earn a hefty commission by charging you more.
- The dealership/finance company didn't check you could afford the loan. The company selling you car finance MUST examine your finances to ensure you can afford it.
2. How much can I get back? You may be able to reclaim £100s, or possibly even £1,000s, if you were mis-sold car finance. The exact amount depends on factors like the size of your loan and the length of your term, as well as exactly what you're complaining about. See How much can I get? for more info.
3. You needn't pay a claims firm – use our FREE TOOL. Claims firms can take a cut of up to 30% off your claim, so instead use this quick link to our free complaints tool. Or, if you prefer, download our template letter to do it yourself by email/post (downloads an editable Word document).
This is the first incarnation of this guide. If you've any feedback or questions we've not answered, let us know in the reclaim car finance forum thread.
Thanks to the Financial Conduct Authority (FCA), Martyn James of Resolver, and Coby Benson of Bott and Co, for fact-checking this guide.
What is car finance?
Paying for a car using finance simply means you can drive a shiny new car (or a used one if you're buying second-hand), without forking out the full cost upfront.
Some deals give you the option of owning the car at the end of the loan term, while with others you hand the keys back having simply 'hired' the car for a set period of time.
Car finance is a multi-billion-pound industry. Figures from the Finance & Leasing Association show its members provided new consumer car finance agreements worth £37 billion in the UK in 2021, with more than two million agreements being signed last year (for both new and used cars).
Different types of car finance explained
If you're reading this guide, you may already know what type of finance you've got, but in short the main types are:
- Personal contract purchase (PCP). This is the most common type of car finance. It's a bit like a loan to help you get a car. But unlike a normal loan, you won't be paying off the full value of the car and you won't own it at the end of the deal (unless you choose to pay a much LARGER final payment – called a balloon payment). For more info, read our guide on PCP.
- Hire purchase. This is where you pay off the value of the car in monthly instalments. The loan is secured against the car, so you don’t own the vehicle until the last payment has been made. Find out more about hire purchase.
How to check if you've been mis-sold car finance
Many people have no problems whatsoever with their car finance agreements.
However, some people were mis-sold their contracts, either because details of the agreement weren't made clear to them, or because the proper affordability checks weren't carried out. If you've been affected by either of these issues, you can complain.
Other customers took out car finance and subsequently had problems with the vehicle itself. While not a form of mis-selling, you can also complain about this.
We go through each of these three complain types in more detail in this section:
- Lack of clarity on costs, commission or the contract
- Lack of affordability checks
- Faulty or unsatisfactory vehicle
Important: It doesn't matter whether you have an ongoing car finance deal or if you've already paid it off, you can STILL make a reclaim. While it's best to raise a case within six years of the end of the agreement, all is not lost if it's longer. The Financial Ombudsman Service (FOS) will consider cases for customers who only found out in the last three years they've been mis-sold car finance.
As with any financial commitment, it's important to read all the small print before taking out car finance. However, the finance company also has a duty of care to make the details of the agreement clear to you.
If your car finance agreement and its associated costs and charges weren't fully explained to you, you can complain. Here are some examples:
- I didn't realise my dealer was earning a hefty commission. The FCA estimates that up to 95% of car finance deals had some form of commission model. While commission in itself isn't a bad thing, some commission-based agreements may have been mis-sold.
The FCA estimates that up to 95% of car finance deals had some form of commission model. Shockingly, in around four in 10 of those agreements, the higher the interest rate you were charged, the MORE commission the broker would get. Though this particular commission model was banned in January 2021, many customers who took out car finance before then may have been affected.
It probably won't be obvious from your contract if commission was taken, so ask the dealer or finance company to confirm how much, if any, was taken. If you think the amount is unfair, or could have affected your decision, address this as part of your complaint.
- I was sold expensive 'hidden' extras that weren't appropriate. When a firm sells you an insurance policy or service contract, it should make it clear if similar options are available elsewhere. If it implies that you have to take its policy, or doesn’t tell you about your other options, you can argue you were mis-sold the policy.
- My contract had 'surprise' charges for extra miles. Most PCP policies have mileage limits. If you go over your allocated mileage limit, you pay extra by the mile. While this sum per mile might sound low, it can add up significantly. If this wasn’t made clear, you can argue that it’s not fair to charge you this fee.
- I was hit with disproportionate charges for damages. If the dealer or finance company charges you unacceptable charges for damage to the vehicle – particularly if it’s minor – you can argue they're interpreting the contact unfairly. Alternatively, you can get quotes for similar repairs, and ask for the difference in the quotes.
- I thought I was paying off the car and I'd own it at the end. PCP contracts are incredibly complicated. If any aspect of the contract wasn't made clear, you can argue that it is unfair – particularly if you've lost money, or been misled about owning the vehicle at the end. For example, you could argue that you’d have just leased the car had you known the costs.
Many PCP customers believed they were entering into a hire purchase deal, effectively paying down the value of the vehicle to own it at the end of the term, when in actual fact their deal incurred a balloon payment at the end which they often couldn't afford.
Before lending to you, your car finance provider (which is selling you the contract) MUST check you can afford the loan – if it fails to do so, you can complain.
It's important to note that if you could afford the car finance contract when you took it out, it WASN'T mis-sold to you – even if a subsequent change in your circumstances meant you could no longer afford the payments.
However, if any of the following happened to you, it's possible your contract was mis-sold:
- I struggled to make my monthly payments. A loan is only affordable if you can make the repayments on time – without hardship – and still meet your other commitments. So if you're struggling to meet your repayments, and you haven't had a significant change in circumstances since you took the loan out, you might have been mis-sold.
- I never missed a payment but got into other debt to prioritise my car repayments. Even though your repayments are up to date, the loan wasn't necessarily 'affordable' for you. For many, their car is their lifeline, so they prioritise their car repayments, despite struggling with increasing credit card balances, taking out further loans, or getting behind with household bills. If that's you, you might have been mis-sold.
- I owe much more at the end of my deal than I expected and/or can afford. One in five PCP customers say they cannot afford the final payment (the balloon payment). This could be because the contract was mis-sold from the outset – or because the estimated final payment was not properly explained. Again, you can complain about this.
While not a form of mis-selling, if your vehicle isn't as advertised, or is faulty, all your usual rights when buying goods or services apply.
As long as you’ve purchased the car from an official dealer, it should be covered by the Consumer Rights Act, which says a product should be of satisfactory quality, fit for purpose, and as described. If it isn't, you could be entitled to a refund or a free repair – see How much can I get? for more info.
In addition to the Consumer Rights Act, if you used a credit card to pay the deposit for the car finance agreement, you might also have FREE Section 75 protection. This makes your credit card provider jointly liable to help resolve the issue. To be eligible, the good or service you purchased – in this case the car finance agreement – must have been paid for on credit card, and cost between £100 and £30,000. See more in our Section 75 guide.
Some inspiration... 'Tom was released from his contract, got his credit file rectified, and the remaining finance was cancelled'
We haven't yet got our own MoneySaver success stories to share, as this a new reclaiming guide, and many people are unaware they can complain about their car finance contract. If you use this guide and have success with your reclaim, please do let us know.
In the meantime, the Financial Ombudsman Service has shared some of the complaints it has received. This one is from Tom, whose claim was upheld after the Ombudsman deemed the lender hadn't carried out the appropriate affordability checks:
Tom was struggling to keep up with his car finance repayments. When his lender told him that it was taking the car back and that it could affect his credit file, he took his case to the FOS.
Tom told the Ombudsman that he was 24 years of age, working, and living in rented accommodation. His take home pay was around £1,200 each month, he paid around £450 rent, £200 in utility bills and food, plus £200 each month to a credit card and previous car loan that hadn’t been cleared. His new car finance agreement cost £245 each month over three years.
The Ombudsman found that had more appropriate checks been carried out, the finance provider wouldn't have agreed to the credit and would have declined the application. To put things right, the finance company was told to take back the car, cancel the remaining finance amount, correct any adverse entries it had applied to Tom’s credit file, and refund his deposit with interest.
How much can I get back?
There are two things to bear in mind here.
Firstly, unlike other forms of reclaiming, such as mis-sold payday loans or PPI, you're getting the benefit of driving a car – or in finance terms, you have the 'advantage of the product'. So in many cases, the money you can get back will be smaller compared to what you would have got back on a mis-sold product you never used, such as PPI. You could get £1,000s back, but £100s is probably more likely.
Secondly, many people who have, or have had, some type of car finance agreement are simply NOT aware there might have been issues with the contract they could complain about. So the resolution processes for lots of these complaints are still hypothetical and untested, meaning only time will tell what a typical car finance payout looks like.
DON'T let that put you off, though – submitting a complaint is quick, easy and completely free, so there's really nothing to lose. Below, we run through what you might be able to claim back for each of the three types of complaint:
Checking whether or not you have a mis-selling case usually works by looking at what position you would have been in had the situation not occurred. So you can expect compensation in proportion to the level of loss or detriment you've suffered.
This means complaints are often resolved by addressing what you probably would have done had you been given all the correct information at the point of sale. Again, many of these haven't yet been tried and tested, but you could ask for...
- The difference between the interest rate you were quoted and the rate you should have been quoted. This is most likely where there were huge amounts of commission in your contract, especially if the dealer was getting more commission if your interest rate was higher.
The FCA estimates that on a 'typical' car finance agreement of £10,000 over a four-year term, customers would have overpaid by around £1,100 for deals where the broker had discretion over the interest rate a customer was charged.
- The money you would have saved if you’d known it would've been cheaper to take out a different credit agreement. You can ask for the difference between the deal you were sold and the better deal (if there was one) you could have taken. For example, you might have chosen to buy the car outright, or taken out a personal loan, rather than going down the PCP route. The bottom line is you must demonstrate what you would have done if you’d been given all the options.
- Compensation for specific mis-selling. For example, the difference in the balloon payment you were told you’d get versus what you did get.
- Compensation for the credit balance if you were guaranteed you’d save a certain sum for a deposit. If you were told you'd have £2,000 'spare' at the end of your PCP agreement that you could use as a deposit for your next car when you trade the car in, but you then don't have that much (or anything) leftover, you can ask for that. However, this can be hard to prove unless it's written down on your paperwork.
- Compensation for the difference between any insurance policy or policies you were sold and comparable ones on the market at the time. The difficulty here is finding out if it's a financial product or not. Some add-on policies such as alloy cover or wheel replacements could be specialist insurance products, though others aren't. The best way to find out is to check the small print.
- If, as part of your car finance deal, you were sold an insurance policy that was arguably unnecessary (and you haven’t claimed on it), you can request a a refund of the premiums. On top of the refund, you can also claim 8% interest per year on payments from the date they were paid to the date of settlement.
There's NO definite guarantee, as many of these situations haven't been tried and tested yet. But if you're struggling to repay your loan or can't comfortably afford it – and you HAVEN'T had a significant change in circumstances since you took the loan out – you could ask for...
- Any fees or charges to be waived if you want to give the car back because the loan was unaffordable.
- The firm to refund what you’ve been overcharged. If you feel like you've been mis-led on what you'd pay, you can request a refund.
- Interest back on top of the total amount of your refund. Just like any other borrower, on top of the refund you can also claim 8% interest per year on payments from the date they were paid to the date of settlement. This is basically interest on top of interest, plus any fees and charges that might have been charged.
- Any fees and charges for missed payments to be waived.
- Your credit file to be adjusted. The finance provider would be asked to help remove any adverse entries on your credit file – including county court judgments.
If your car is of unsatisfactory quality, unfit for purpose, or not as described, you can complain. What you're entitled to under the Consumer Rights Act depends on how much time has passed since you got the car:
- Within the first 30 days of taking ownership of the car. If the car is of unsatisfactory quality, unfit for purpose, or not as described, you can legally reject the car in exchange for a full refund.
- After 30 days, but less than six months after taking ownership of the car. If a fault comes to light in this period, you’re entitled to either repair, replacement or a refund. It’s assumed in law that the fault was present at the time of purchase unless the seller can prove otherwise.
- More than six months after taking ownership of the car. If a fault comes to light after six months and you want to pursue a claim for repair or replacement, the burden is on you to prove that the product was faulty at the time of delivery. But don't let this put you off making a complaint – Zoey's story below shows it's possible to successfully complain about a fault after six months.
While the Consumer Rights Act is strong legal protection, bear in mind that just because a car has broken down doesn't necessarily mean it qualifies for a complaint – cars can develop faults and even break down without being inherently faulty.
But if you've experienced consistent problems with a car, or your dealer hasn't dealt with problems to your satisfaction, it may well be worth your while submitting a complaint using our free tool below, even if it's been more than six months since you got the car.
The Financial Ombudsman Service (FOS) can also deal with these complaints, as they did with Zoey's (taken from the FOS website):
Zoey bought a new car via a hire purchase agreement. A year later, a fault developed with the clutch pedal. Work was done to fix this, but the problem returned a few months later. A few months after that, a new problem developed with the steering. Zoey contacted her car finance provider to ask them to take the vehicle back, but it said it wasn't liable for the faults as they had developed after a year.
Zoey escalated her complaint to the FOS. It said that despite the car still being fairly new and having done relatively few miles, several serious faults had developed. It ruled that it didn't think Zoey had caused the issues, that it was reasonable to expect the car to be more durable, and that the car wasn't of satisfactory quality.
The FOS told the finance provider to: take the car back at no cost to Zoey and end the hire purchase agreement; refund her deposit with 8% interest; refund Zoey for the two monthly payments she made while the car was being repaired; pay Zoey £150 in compensation for the inconvenience she'd experienced; and remove any adverse information from Zoey's credit file.
How to reclaim mis-sold car finance for FREE
If you think you've a valid complaint, the process of making it is quick, simple and free. To make it even easier, we've developed a car finance reclaim tool with complaints site Resolver. If your dealership or finance provider isn't listed, you can use our template letter instead.
If you complain via Resolver, it'll also help escalate your case if needed. It will prompt you to contact the FOS after eight weeks, so if your complaint's rejected, you don't hear back, or aren't happy with the final offer, the Ombudsman will look at your case (though you must escalate it within six months of the rejection/final offer).
Important: You need to decide who to complain to. If you're unhappy with the quality of your car, for example, you'll probably want to direct your complaint to the dealer you bought it from, whereas if you're unhappy with an aspect of your car finance contract, the finance provider is probably your best bet. If in doubt, check which company is named on your paperwork, or call the dealership and finance company to ask them where to direct your complaint.
We know some people prefer not to use the online tool, so you can also submit your complaint directly to the car dealership or finance provider, using our free template letter below to help.
Call the company, or check its website for the address of the complaints department. Then just explain your complaint clearly by writing concisely and honestly, as if you were explaining to a friend why you've been wronged. Don't feel you have to be formal.
To help, we've put together a template letter – download it and fill in the blanks. (Use it to help start you off, but the more you write in your own words, the better.) And remember to keep a copy of the template letter – it'll be helpful if you end up needing to go to the Financial Ombudsman later on.
Download our car finance template letter (opens a Word document).
Note: Generally, these things are best done in writing, but if that's too difficult, don't worry about calling. Just ask it's noted down as a formal complaint, and also ask for written confirmation.
If you don't hear back from the car dealership or lender after eight weeks, or your complaint's rejected, or you're not happy with the response, escalate your complaint to the free, independent Financial Ombudsman Service (FOS). This is the official, impartial body for settling disputes between individuals and financial companies.
You need to fill in the Ombudsman complaint form.
As with the first letter to the car dealership or finance provider, which you could always copy and paste, don't feel you have to be formal. Explain the point clearly, concisely, honestly and in your own words.
If you need help filling this in, call the FOS on 0300 123 9123 or 0800 023 4567, and it'll guide you through the claim. Or you can use our step-by-step guide. It's written in Microsoft Word, so you can easily cut and paste sections, or print it and have it next to you as you're filling in the ombudsman's form.
When you're done, you can either send it back by post, or fill it in online. Attach any paperwork to back up your case. The ombudsman will send a confirmation letter to say it'll look into your case and get back to you if it needs any more information.
It will decide if the circumstances under which the car finance contract was sold were unfair, then decide what redress is required. In most successful mis-selling cases, this means a refund.
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