Fixed commission refers to a set fee that car dealers receive from finance companies when they arrange financing for motorists. Unlike variable arrangements where dealers earn more if interest rates are higher, fixed commissions ensure that the dealer's payment remains constant regardless of the loan terms offered.
For example, imagine you're buying a new car and need a £15,000 loan to do so. The finance company offers you this loan at an annual interest rate of 6%, which is standard for similar deals. However, the fixed commission paid to your dealer for arranging this financing might be £400. This means that regardless of whether the interest rate was higher or lower, the dealer earns a flat fee of £400 from setting up your finance agreement.
The FCA (Financial Conduct Authority) prefers fixed commissions because they promote transparency and fairness in financial transactions. Before January 2021, many dealers earned money through arrangements that could encourage them to push customers into deals with higher interest rates, which benefited the dealer but not necessarily the consumer. Fixed commission models help ensure that the cost of arranging your finance is consistent and doesn't vary based on how good or bad a deal you get.
Under FCA rules, fixed commissions must be disclosed clearly so motorists understand what they're paying for. This transparency helps protect consumers from unnecessary financial pressures when buying a car.
A practical tip to keep in mind: Always ask the dealer about any fees involved with arranging your finance and ensure these costs are transparently explained before you agree to anything. Understanding exactly how much you'll pay for financing can help you make an informed decision that's best for your budget.
How This Relates to the FCA Redress Scheme
The FCA motor finance redress scheme covers 12.1 million agreements with an average compensation of £829 per agreement. The total cost to firms is £9.1 billion. If you had PCP or HP finance between 6 April 2007 and 1 November 2024, you may be eligible. The final deadline to complain is 31 August 2027. You do not need a claims management company.