Commission and your car finance deal — who pays whom, and why

Commission is the single most misunderstood part of UK car finance. It's a legitimate model — the same one that pays for mortgage brokers, insurance brokers, and most independent financial advisers — and it has been the subject of the biggest FCA intervention in retail lending of the last decade. This page sets out exactly who pays whom on a typical car finance agreement, what the FCA changed in January 2021, and what commission on your specific deal actually looks like in £ terms.

The important thing before anything else: you don't pay the broker. The broker is paid by the lender when a finance agreement completes. Your rate is set by the lender's underwriting model, not by the commission the broker will receive. That structure existed before 2021, and it still exists now — what changed in 2021 is that a broker or dealer can no longer earn more commission by arranging you a higher interest rate. That specific link is banned.

The one-sentence definitions

Definition

Introducer commission

The fee a lender pays a broker or dealer for introducing a customer whose finance agreement completes.

In UK motor finance this is almost always paid by the lender, not the customer. It's normally a fixed fee or a fixed percentage of the amount financed — agreed in advance between the lender and the broker — and it must be disclosed to the customer in £ terms before the agreement is signed.

Who pays whom on a typical agreement

The flow of money on a car finance deal is simpler than most people think. The lender advances the price of the car to the dealer. You pay the lender back, in monthly instalments, over the term of the agreement. Somewhere in that flow the lender also pays a fee to whoever introduced you — the broker, or the dealer's own finance desk. That fee is the commission. It doesn't come out of your monthly payment as a separate line and it isn't added to your rate; it comes out of the lender's own margin on the deal.

What the FCA changed in January 2021

Before 2021, most car finance commission ran on what the FCA called a discretionary commission model. The broker or dealer could choose, within a range, what interest rate to arrange for you — and their commission increased as your rate went up. That created a clear incentive to place higher rates on customers regardless of whether they warranted them, and the FCA found evidence that many customers had paid more as a result.

Policy Statement PS20/8 banned that structure with effect from January 2021. Since then, commission on a UK motor finance agreement has to be structured in a way that doesn't move with the rate. In practice, this means one of two things: a flat fee per agreement, or a fixed percentage of the amount financed. Both are agreed between the lender and the broker in advance and don't change based on the rate you're offered. Any commission arrangement still has to be disclosed to you before you sign the pre-contract information.

What commission does not do

It doesn't increase your monthly payment. It doesn't add points to your APR (Annual Percentage Rate — the yearly cost of borrowing including interest and standard fees, used to compare finance offers on a like-for-like basis.). It doesn't come out of a hidden budget the lender then charges you back for. On the lender's side, commission is treated as a cost of customer acquisition and is baked into the lender's overall pricing model, in the same way a supermarket's marketing budget is baked into shelf prices. On your side, the rate you're offered is set by underwriting on your credit profile — the same rate you'd have been offered if you'd applied directly to that same lender without a broker in the middle.

This last point is worth pausing on because it's counterintuitive. If you approach Lender A directly and Lender A also happens to be one of a broker's panel lenders, the rate they'll quote via the broker on the same profile is normally the same rate they'd have quoted you if you'd walked in the front door. The broker route doesn't add cost; it adds access.

Illustrative worked example

A customer takes an HP (A car finance product where you pay a fixed monthly amount and own the car outright at the end of the term.) agreement on a £16,500 used car with a £2,500 deposit, so £14,000 is financed over 48 months at an example APR of 12.9%. The monthly payment lands around £372 and the total repayable is roughly £17,850 to the lender. On this agreement the broker earns a commission from the lender — for illustration only, £225 as a fixed fee, or £210 at a 1.5% rate. Neither figure is charged to the customer, neither figure changes with the rate, and both would appear in £ terms on the pre-contract information the customer signs. See the transparency page for the ranges we actually work within — the specific figures above are illustrative until confirmed by the client.

How to check a broker's commission is above board

1. Confirm the firm is on the FCA Financial Services Register at register.fca.org.uk before you sign anything.
2. Ask whether their commission on your agreement is a fixed fee or a percentage of the amount financed. Both are fine; a straight answer is what matters.
3. Ask for the commission figure in £ terms before you sign. It has to be disclosed.
4. Read the pre-contract information (SECCI). It sets out the amount financed, the APR, the total repayable and any commission arrangement.
5. Walk away from any 'broker' who won't answer any of the above or asks for money up front. That isn't how the model works.

Why the FCA banned discretionary commission in the first place

The FCA's 2019 review of the motor finance market found that a majority of commission arrangements in place at the time gave brokers or dealers discretion to set the customer's interest rate within a defined range — and that their own commission increased when the customer's rate went up. On the FCA's estimates at the time, discretionary commission structures were costing UK consumers roughly £300 million a year more than a non-discretionary equivalent. That finding is what motivated Policy Statement PS20/8 and the January 2021 ban.

What the ban did not do is remove commission from the model. Intermediaries are still paid, because the intermediary function — running a soft search (A credit check that doesn't leave a visible footprint on your credit file for other lenders to see.) across a panel, packaging an application for underwriting, chasing documents — remains real work that the lender is happy to pay for rather than staff internally. What the ban did was disconnect that payment from the customer's rate, so the broker's incentive is now to arrange the agreement, not to arrange a higher-priced version of it.

That's a subtle but important shift. A broker's commercial interest under the new regime is aligned with getting the deal placed at a rate the customer will actually accept, and with keeping default rates low across the panel so lenders continue to underwrite through them. A broker whose customers routinely default or complain doesn't stay on lender panels for long, regardless of any short-term commission gain.

What ongoing FOS complaints mean for the industry

Since 2023 the Financial Ombudsman Service (The free, independent dispute-resolution service for regulated financial products in the UK. You don't need a claims company to use it.) has been dealing with a large volume of complaints from customers who took out motor finance under the pre-2021 discretionary commission regime. Those complaints are being assessed against the rules that applied at the time. For any agreement taken out after January 2021, the discretionary commission model is no longer in play, and the disclosure obligations under CONC 4.5 apply throughout — which means commission arrangements on new agreements are structurally different from the ones under FOS review.

For customers looking at a new agreement today, the honest way to think about commission is: it exists, it's paid by the lender, it's disclosed to you in £ terms on the pre-contract information, and it doesn't move with your rate. Ask the questions, read the disclosure, and if any answer feels evasive, take it as a signal to look elsewhere. Every serious broker in this market is used to those questions and answers them without hesitation.

One further point worth making plainly: commission disclosure is not a nice-to-have box that the FCA hopes brokers will tick. CONC 4.5 sets it out as a mandatory pre-contractual obligation, and any broker failing to disclose commission adequately opens itself to both regulatory action and Financial Ombudsman complaints from every customer affected. That's a structural incentive to disclose properly that didn't exist before the current rules were written, and it's why the answer to 'how much commission are you earning on my deal in £ terms?' is, at any serious FCA-regulated broker in 2026, a number rather than a shrug.