Getting a new car? Be careful of overcharged loans

The Financial Conduct Authority (FCA) is considering changes to the way commission is calculated in the car finance market after uncovering concerns about the way lenders reward car retailers and brokers.

The FCA clarified that because of the widespread use of commission structures, which allow brokers to set the customer interest rate, customers are collectively being charged £300 million annually overall.

On a typical car finance agreement of £10,000, the higher level broker commission can result in the customer paying around £1,100 more in interest charges over the four year term of the agreement.

This has resulted in conflicts of interest, where the commission structure is not adequately controlled by lenders, which results in the customers paying significantly more for their finance.

The FCA has been carrying out mystery shopping of firms, and found customers were not given enough information to make informed finance decisions.

If you are unhappy with your credit agreement, contact the dealer or lender you took it out with and raise your concerns. If you are still not happy with their response, you can escalate your complaint to the Financial Ombudsman Service.

However, if you are looking to buy a new car, the best thing you can do is arm yourself with as much information about the costs as possible before signing any kind of financial agreement.

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