When it comes to valuing a mis-sold car finance claim in the UK, several factors need to be considered. Compensation is generally aimed at covering the financial disadvantage caused by the mis-selling, particularly in cases involving Discretionary Commission Arrangements (DCAs). However, a recent Court of Appeal ruling has opened the door for claims involving hidden commissions in general, which could increase eligibility for compensation in many cases.
How Is Compensation for a Car Finance Claim Calculated?
Calculating the compensation for a mis-sold car finance agreement involves a different approach compared to other types of loans. This is because car finance loans often include special features, such as:
Interest Rate Differences: The main element of compensation is based on the difference between the interest rate you paid and the lowest interest rate that was available to borrowers in a similar position. If you were charged a higher rate due to a hidden commission or unfair lending practices, you might be eligible for compensation to bridge that gap.
Outstanding Balances and Final Payments: Unlike traditional loans, car finance agreements typically include either:
A balloon payment (a one-off payment required to settle the loan at the end of the term), or
A vehicle return option (where you hand the car back instead of paying off the remaining balance).
Compensation calculations will also take these unique features into account.
Refund of Hidden Commissions: If the lender or broker earned a hidden commission that wasn’t disclosed to you, this could be claimable. Under the Court of Appeal ruling, all undisclosed commissions, not just DCAs, may be grounds for a claim.
Statutory Interest:In addition to the refund of overpaid interest or fees, you may also be entitled to statutory interest. This is an additional 8% applied to the amount of compensation, reflecting the time you were deprived of the funds.
What Are Discretionary Commission Arrangements (DCAs)?
Discretionary Commission Arrangements are a type of car finance deal where the broker or dealer sets the interest rate, which can include a hidden commission. These commissions incentivise brokers to offer higher interest rates to borrowers, often without the borrower’s knowledge. If your car finance loan included a DCA, you may have paid significantly more than necessary.
Recent legal developments mean that you could also have a case even if your agreement didn’t involve a DCA, as the courts are increasingly recognizing that all hidden commissions may be considered unfair.
Example of a Claim
Imagine you financed a car for £15,000 over four years. The broker set an interest rate of 10%, while the lowest available rate for someone with your credit profile was 5%. This means you would have paid around £2,000 more than someone receiving a 5% loan (the exact figure depends on how quickly you paid off the loan). If this difference was due to a DCA payment to the broker, you could claim back the overpayment plus 8% statutory interest.
How to Use the Calculator
Our car finance compensation calculator can help you estimate how much you might be owed. It works by comparing the interest rate you paid with an assumed lowest available rate of 5%, and calculating the difference. The monthly payment will indicate how quickly you paid back the loan, so the lower this is the higher the total interest paid is.
We are a claims management company that can help establish and process claims on behalf of consumers to recover compensation against various types of lenders. You do not need to use a claims management company to make your complaint to your lender or the Financial Ombudsman for free.
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