What is hidden commission in car finance?

Hidden commission refers to payments made by a lender to a car dealer for arranging finance, where the existence or impact of that commission was not clearly disclosed to the customer.

Is commission itself illegal?

No. Commission itself is not automatically illegal. Problems arise when commission creates a conflict of interest and this is not clearly explained to the customer.

How did hidden commission affect interest rates?

In some models, dealers could increase the interest rate offered to a customer and earn more commission as a result. Customers were often not told that this discretion existed.

Does hidden commission only affect PCP agreements?

No. While PCP agreements are commonly involved, Hire Purchase and other car finance products can also be affected depending on how commission and interest rates were structured.

Hidden Commission in Car Finance Explained

Q: Does hidden commission mean an agreement was mis-sold?

Not automatically. Mis-selling depends on whether the customer was given clear, fair and transparent information at the point of sale.

Hidden commission is one of the most misunderstood aspects of car finance mis-selling. This page explains what hidden commission is, how it worked in practice, and why it raised serious concerns about fairness and transparency.

Part of the complete guide: Car finance mis-selling explained →

What is commission in car finance?

Commission is a payment made by a lender to a car dealer for arranging a finance agreement. It is a common feature of many financial products and is not automatically a problem.

Issues arise when commission influences the terms offered to the customer and this influence is not clearly disclosed.

When commission becomes 'hidden'

Commission becomes problematic when customers are not told that it exists, how it works, or how it may affect the interest rate they are offered.

In many cases, customers were led to believe the interest rate was fixed or standard, when in reality the dealer had discretion.

How hidden commission affected customers

Hidden commission could lead to higher interest rates, even when customers were otherwise eligible for better terms. The impact was often not obvious because the focus was placed on monthly payments rather than total cost.

This meant customers could pay significantly more over the life of the agreement without understanding why.

Hidden commission and Discretionary Commission Models

Hidden commission is closely linked to Discretionary Commission Models (DCMs), where dealers could increase interest rates and earn more commission as a result.

Why transparency matters

Transparency allows consumers to make informed choices. When commission arrangements are hidden, customers cannot properly assess whether a deal is fair or competitive.

This lack of transparency is why hidden commission has become a central issue in many car finance mis-selling complaints.

Does hidden commission mean mis-selling occurred?

Not necessarily. The key question is whether the customer was given clear, fair and transparent information at the point of sale.

Understanding hidden commission helps explain why certain agreements are now being reviewed and challenged.

Next step: How to complain about car finance mis-selling →