Car Finance Compensation Scheme to Pay £7.5bn to Drivers — Check If You Could Get £830

Millions of UK motorists are set to receive compensation under a new car finance redress scheme, after regulators found that some customers were not given key information about how their loans were arranged.

The Financial Conduct Authority said around 12.1 million finance agreements taken out between April 2007 and November 2024 could fall within scope. If roughly 75 per cent of eligible customers make a claim, total payouts are expected to reach £7.5 billion, with average compensation estimated at about £830 per agreement.

The issue centres on how some loans were structured, particularly where brokers or dealers were able to influence interest rates or receive commission without this being clearly explained. The regulator said this lack of transparency meant some borrowers paid more than they otherwise would have.

How the Issue Affected Customers

Before changes to the rules, brokers and dealers could adjust interest rates within limits set by lenders, increasing the overall cost of borrowing. In some cases, customers were not clearly informed about these arrangements or the level of commission involved.

As a result, some paid more than they would have if full details had been disclosed at the time. This also meant borrowers were not always able to compare finance offers properly or identify the most competitive option.

Who Is Eligible for Compensation

The scheme applies to certain motor finance agreements taken out between 6 April 2007 and 1 November 2024. Customers may be eligible if a dealer or broker was able to set the interest rate in a way that increased their commission, particularly where that commission was high and not clearly disclosed.

Eligibility may also depend on whether the structure of the agreement limited access to alternative lenders, affecting how competitive the offer was.

Not all agreements will qualify. Compensation will only be paid where a financial loss is identified. Cases may be excluded where commission levels were minimal, no interest was charged, or there is no evidence that a better deal would have been available at the time.

How Compensation Will Be Calculated

Payments will be based on the financial loss suffered by each customer. In most cases, this involves comparing the interest rate paid with the rate that would likely have applied if commission had not influenced the deal. Any difference may be refunded, with an additional 8 per cent annual interest applied to reflect the time the customer was out of pocket.

The commonly cited figure of around £830 reflects industry estimates instead of a fixed amount. Actual compensation will vary depending on the size and length of the agreement, with some customers receiving more and others less.

When Payments Could Be Made

A final decision on the redress scheme is expected in May 2026. If approved, lenders will begin contacting affected customers directly, outlining eligibility and next steps.

Payments are unlikely to be immediate, as firms will need time to review past agreements and process claims. However, the system is expected to be designed so that most customers can receive compensation without needing third-party assistance.

What Drivers Should Do Now

Motorists who believe they may have been affected can contact their lender directly to request information about their agreement.

The process is free, and there is no requirement to use a claims management company, some of which charge significant fees. Customers are advised to gather relevant documents, including finance agreements and payment records, and to remain cautious of unsolicited offers or scams.

Complaints will continue to be overseen through existing channels, with unresolved cases able to be referred to the Financial Ombudsman Service.