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.”

Make sure you don’t overpay for car finance - your car finance checklist

To make sure you don’t end up over-paying for your car finance:

• Shop around – you don’t have to take finance from the car dealer, you can buy it from lenders like Admiral. Our car finance is only available directly to car buyers, not through car dealers, so the commissions we would pay car dealers is passed on to consumers through lower rates
• Do your research – make sure you understand the difference between different types of car finance like PCP and Hire Purchase, for example PCP means paying a lump sum (called a balloon payment) if you want to keep the car
• Understand the numbers - you should know how much you’ll be paying every month and in total before agreeing to any finance deal. We put together a car finance checklist to help you compare different car finance deals and choose the right one for you

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:

• Make friends with the salesperson, rather than thinking they’re someone who’s trying to rip you off
• Be honest with salespeople about your expectations, and deals you’ve seen elsewhere
• The best time to buy a car is either quieter times, the end of a quarter or when a car model is superseded by a newer model
• Checking the extras – if you’ve paid for extras like paint protection or interior fabric protection, test that they’ve actually been put on
• And even our secret salesmen recommended you shop around for finance before heading into the showroom, and understand what you’re signing up for