Car finance in the UK is changing fast, with new regulations and economic pressures shaping the market. The Financial Conduct Authority (FCA) has tightened rules on commission structures, affecting how dealers and brokers operate. Rising interest rates and the shift to electric vehicles (EVs) are also creating uncertainty for borrowers.
The Impact of the FCA’s Crackdown on Commission
The FCA has banned discretionary commission models, stopping dealers from inflating interest rates for extra profit. This move aims to protect consumers from paying more than necessary for car finance agreements. Experts believe this change will save UK drivers millions of pounds over the next few years.
Before the ban, lenders allowed brokers to set interest rates, often leading to unfairly high costs for customers. A report by the FCA found that 40% of customers paid more because of this system. Consumers now get clearer pricing, making it easier to compare finance deals and secure better rates.
Car Finance Mis-selling Claims Are Rising
Thousands of UK drivers are filing complaints about mis-sold car finance agreements. Legal firms are investigating cases where dealers failed to explain commissions or inflated interest rates unfairly. If successful, these claims could lead to significant compensation payouts.
A study by the Financial Ombudsman Service (FOS) found a sharp rise in car finance complaints since the FCA’s intervention. Some claims suggest borrowers overpaid by thousands due to non-transparent lending practices. If mis-selling claims gain traction, the industry could face a compensation bill worth billions.
One of the biggest names linked to car finance mis-selling is Black Horse, with many customers now pursuing Black Horse refunds. These claims focus on cases where unfair commission structures led to excessive interest payments. If you had a car finance deal with Black Horse, it may be worth checking if you’re eligible for a refund.
Rising Interest Rates Are Making Car Loans More Expensive
The Bank of England has raised interest rates multiple times to curb inflation, directly impacting car finance costs. Higher rates mean monthly payments on PCP and HP agreements have increased for new borrowers. This trend has made affordability a major concern for UK car buyers.
According to the Society of Motor Manufacturers and Traders (SMMT), new car registrations dropped by 7% last quarter. Many consumers are delaying purchases or switching to used cars due to rising borrowing costs. The higher cost of credit has also reduced the appeal of traditional car finance deals.
The Shift Towards Subscription and Leasing Models
With rising costs and regulatory scrutiny, many drivers are exploring car subscription and leasing options. Subscription models offer fixed monthly payments that include maintenance, tax, and insurance. This approach provides flexibility without long-term financial commitments.
Data from Leasing.com shows a 15% increase in personal contract hire (PCH) agreements compared to last year. Younger consumers, in particular, are shifting away from ownership and choosing pay-as-you-go mobility solutions. Car manufacturers are also promoting leasing options to maintain demand and secure revenue streams.
The Growing Popularity of Electric Vehicle Finance
The UK government’s push towards net-zero emissions has accelerated demand for EV finance solutions. Traditional PCP and HP deals are still available, but some lenders offer lower rates to encourage green purchases. However, high upfront costs and concerns about battery lifespan remain key barriers for buyers.
Recent data from Auto Trader shows that EV finance applications have increased by 28% year-on-year. Many lenders now offer tailored finance packages for EVs, including lower APRs and extended loan terms. Despite these incentives, charging infrastructure and long-term costs remain major concerns for consumers.
Will the PCP Model Survive the Next Decade?
Personal Contract Purchase (PCP) has dominated UK car finance for years, but its future is uncertain. Rising interest rates, stricter lending rules, and changing consumer habits could weaken its appeal. Some experts believe a move towards leasing and direct manufacturer financing could reshape the industry.
A recent study by the Finance & Leasing Association (FLA) found that PCP now accounts for 78% of new car finance deals. However, increased scrutiny over balloon payments and affordability assessments may lead to a decline. The industry must adapt quickly to maintain customer trust and financial stability.
What Should UK Car Buyers Do Now?
Consumers should review their existing finance agreements and check if they were mis-sold any products. Shopping around for deals from independent lenders can help secure better interest rates and avoid hidden fees. Considering leasing or subscription models may also be a smart move in the current economic climate.
With so much uncertainty in the market, making informed financial decisions is more important than ever. Always compare finance options carefully and seek expert advice before signing any agreements. Staying aware of regulatory changes can help UK drivers avoid unnecessary costs and financial pitfalls.
