What is PCP car finance and why was it mis-sold?

What is PCP?

Personal Contract Purchase (PCP) is one of the most popular ways to finance a car in the UK. Instead of paying the full price upfront, you put down a deposit, make monthly payments over a fixed term (usually 3 to 4 years), and at the end you have three options: hand the car back, pay a final "balloon payment" to own it, or use any equity as a deposit on a new deal.

According to the Finance & Leasing Association (FLA), PCP is the dominant car finance product in the UK, with FLA members financing around 80% of private new car registrations. Between 2007 and 2021, millions of drivers took out PCP deals — often without fully understanding the costs involved.

How were PCP deals mis-sold?

The issue centres on discretionary commission arrangements (DCAs). Under these arrangements, car dealers had the power to increase the interest rate on your finance agreement. The higher the rate they set, the more commission they earned.

This created an obvious conflict of interest. The dealer was supposed to be helping you find the best deal, but they were financially incentivised to charge you more.

Here is what that looked like in practice:

The FCA estimates that around 44% of agreements since 2007 were potentially affected by these unfair commission arrangements.

What did the FCA do about it?

The Financial Conduct Authority (FCA) banned discretionary commission arrangements in January 2021, recognising that they caused widespread consumer harm. At the time, the FCA estimated consumers could save up to £165 million per year as a result of the ban.

But that still leaves millions of agreements from 2007 to 2021 that may have been affected. In October 2025, the FCA published a consultation paper (CP25/27) proposing an industry-wide Consumer Redress Scheme to handle these historic cases, covering agreements from 6 April 2007 to 1 November 2024.

How much could you be owed?

The FCA has indicated that average redress may be around £700 per qualifying finance agreement. With an estimated 14 million agreements potentially in scope, the total cost to the industry could reach up to £8.2 billion including interest.

Many people had more than one car on finance during this period, which means the total refund could be significantly higher.

What should you do?

If you had a car on finance between 2007 and 2021, it is worth checking whether your agreement was affected. You do not need any paperwork — just your name, date of birth, and a few basic details.

The process takes less than 60 seconds and has no impact on your credit score.