The findings were revealed by financial watchdog, the FCA (Financial Conduct Authority), who estimates consumers have been overcharged £1,000 in interest charges which equates to £300 million annually.
When looking at the car finance market, they found the widespread use of commission models, which allow brokers to set the customer interest rate and earn higher commission, could be leading to conflict of interest.
As Admiral Car Finance recently published in our Secrets of the Salesmen report, car dealers have some influence over the APRs they offer customers on used cars - they may have a list of rates they can offer with some wiggle room.
Different rates to customers can mean different commission levels the dealer gets from the car finance lender.
The FCA’s Jonathan Davidson said: “We found some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves.
“We estimate this could be costing consumers £300 million annually. This is unacceptable and we will act to address harm caused by this business model.
“We also have concerns firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”
To make sure you don’t end up over-paying for your car finance:
If you want to know more about how car dealers work, we recently spoke to three car salesmen from across the UK who shared their secrets, which could work in your favour when you’re buying a car: