Mis-Sold Car Finance for Bad Credit Borrowers: What You Need to Know
Many people rely on a car to manage everyday life, whether that's to commute to work, taking the kids to school, or handling daily responsibilities. When paying upfront is not an option, car finance can feel like the only practical solution. This can be especially true for people with a poor credit history, who may feel they have limited choices.
Taking out car finance with bad credit is not automatically a problem. However, issues can arise if the agreement was not clearly explained, was unsuitable for your circumstances, or was unaffordable at the time it was arranged. This article explains how car finance for bad credit borrowers may have been mis-sold.
What Is Bad Credit Car Finance?
Bad credit car finance usually refers to PCP or HP agreements offered to people with lower credit scores or previous financial difficulties. Because lenders see these customers as higher risk, interest rates are often higher than those offered to borrowers with stronger credit histories.
A higher interest rate alone does not mean the finance was mis-sold. Lenders are allowed to price finance based on risk. Problems tend to arise when the way the finance was sold does not meet Financial Conduct Authority (FCA) standards, particularly around clear explanations, affordability checks, and fair treatment.
In many cases, the concern is not the product itself, but how the agreement was explained and agreed.
Why Bad Credit Borrowers May Be More Vulnerable
People with bad credit often find that their options are limited. When a vehicle is needed urgently for work or family commitments, there may be pressure to accept what’s offered without fully understanding the long-term cost or key terms.
The FCA expects lenders and brokers to take extra care where customers may be financially vulnerable. This includes providing clear and accurate information, avoiding pressure selling, and making sure the finance is suitable for the customer’s circumstances. If these standards are not met, the agreement may not have been arranged fairly, regardless of the borrower’s credit history.
How Car Finance May Be Mis-Sold
Mis-selling is not about regret or financial difficulty that arises later. It focuses on whether the agreement was sold fairly and transparently at the time.
For bad credit borrowers, concerns may arise if the total cost of the finance was not clearly explained, or if the focus was placed on monthly payments without explaining the overall amount payable. Problems can also occur where important terms, such as mileage limits, balloon payments, or the length of the agreement, were not properly explained.
Some borrowers also report being told that finance approval was their only option, without being informed about alternative products or the implications of the agreement being recommended.
Commission and Interest Rate Concerns
Car dealers and brokers may receive commission for arranging finance. In the past, some commission models allowed brokers to earn more if a higher interest rate was applied.
The Commission itself is not automatically unfair. However, it may become an issue if it influenced the terms offered to the customer, particularly if this was not clearly explained. For bad credit borrowers, this can be relevant where interest rates were increased without proper disclosure or transparency.
The key question is whether the finance was arranged fairly and with the customer’s interests in mind.
Affordability Checks and FCA Expectations
Before approving car finance, lenders are expected to carry out reasonable affordability checks. These are designed to assess whether repayments can be made without causing financial difficulty.
Affordability assessments should consider income, regular outgoings, and existing credit commitments, as well as the impact of repayments over the full term of the agreement. If repayments were clearly unaffordable based on your circumstances at the time, this may suggest that checks were not sufficient. Later changes in circumstances do not automatically mean the finance was unaffordable when it began.
Suitability of the Finance Agreement
Affordability is only part of the picture. The finance also needs to be suitable for the customer’s needs. For example, a PCP agreement may be unsuitable if mileage limits were unrealistic, or if a large final payment was unlikely to be manageable.
Bad credit borrowers should still expect finance products to be explained properly, including any risks or limitations. Being approved for finance does not automatically mean the agreement was the right choice.
Does Bad Credit Affect Your Consumer Rights?
Having bad credit does not remove your consumer rights. FCA rules apply to all customers, regardless of credit score. You may still be able to raise concerns if important information was not disclosed, the agreement was unsuitable, or affordability checks were inadequate.
Each case is assessed on its own facts, based on evidence from the time the finance was arranged. Reviewing your agreement, pre-contract information, and financial circumstances at the time can help you understand whether FCA standards were followed.
Understanding Your Position
Bad credit car finance is not automatically mis-sold, and higher interest rates alone do not indicate wrongdoing. However, borrowers should still expect fairness, transparency, and appropriate affordability checks.
If something did not feel clear or fair at the time, taking a closer look may help you better understand your position and decide whether further review is appropriate.
If you believe you were mis-sold car finance, check your agreement with Mis-Sold Expert and get a better understanding of your agreement.
You can claim without using a claims management company; you can go to your finance provider and then to FOS, for free. Additionally, the FCA is introducing a free consumer redress scheme.
