Britain's Financial Conduct Authority (FCA) has announced it will ban certain commission models that give car finance dealers an incentive to sell more expensive credit plans to customers.

The move, which takes effect from January 28th, 2021, is expected to save consumers up to £200 on their contract loans, amounting to approximately 6% of their total costs. However, some people could benefit even further, with financial experts estimating an incredible £165 million in annual savings.

Long overdue

For many, including Debt Adviser and Author Sara Williams, the ban has been long overdue. In an interview with the BBC, she said: “The interest rate should reflect the risk that the lender is taking, not how much a car salesman thinks you will pay.”

The problem with the current scheme is painfully visible – the higher the interest rate, the higher the commission, which effectively incentivises dealers to charge fees which are inconsistent with the customer’s credit rating. In their public inquiry, the FCA found that the extensive use of this type of commission encourages dealers to act against the customer’s best interests.

Giving a statement on the ban, the FCA’s Interim Chief Executive, Christopher Woolard, said: “By banning this type of commission, where brokers are rewarded for charging consumers higher rates, we will increase competition and protect consumers”.

He goes on to say: “The FCA will also make changes to the way in which customers are told about the commission they are paying to ensure that they receive more relevant information. These disclosure changes apply to many types of credit brokers and not just those selling motor finance.”

A welcome change

Here at My Car Credit, we welcome the news of a ban on commission-based interest. While some car finance companies have taken advantage of the existing loopholes, we’ve always strived to deliver fairer interest rates to consumers.

We set interest rates on credit score-based pricing, which delivers the best outcome based on the customer’s credit profile rather than linked to commission or profit. In turn, consumers can rest assured they’ll always receive the most favourable deal possible from our large panel of lenders.

What’s more, Evolution Funding, the company behind My Car Credit, has a personal interest in industry transparency. Our CEO, Lee Streets, is the sole representative for motor finance on the FCA Smaller Business Practitioner Panel. Working closely with the regulator, he strives to implement and maintain impeccable practices within the sector.

Are you looking for fairer finance?

My Car Credit’s car finance application process is one of the simplest around, and we’re constantly told how fast, stress-free and enjoyable we make the car buying journey for our customers.

Most importantly, we give you an accurate online decision, including your exact rate and monthly payments, based on your details and credit profile. Crucially, we’ll never use a commission-based model to decide your interest rates.

To find out how we can help you, give us a call on 01246 458 810 or drop us an email at enquiries@mycarcredit.co.uk. One of our knowledgeable team members will get back to you as soon as possible.

 

Rates from 6.9% APR. Representative APR 13.9%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score

Representative Example

Borrowing £7,500 at a representative APR of 13.9%, annual interest rate (fixed) 13.85%, 47 monthly payments of £201.38 followed by 1 payment of £211.38 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £2,176.24, total amount payable is £9,676.24.

My Car Credit is a credit broker and not a lender.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!