DRIVERS buying cars on credit often pay lb1,100 too much in interest, a finance watchdog has warned.
Some dealers and brokers are deliberately inflating interest rates to bag higher commission from “unsuspecting” buyers.
The Financial Conduct Authority found widespread use of such -commission models – where fees are associated with charges – can lead to “conflicts of interest” that are not adequately controlled by lenders.
On a lb10,000 loan, the standard interest should be around lb2,300.
But some dealers are charging lb3,400 – a rise of nearly 50 per cent.
Jonathan Davidson, from the FCA, labelled the practice “unacceptable” and added: “We will act to address harm caused by e-commerce model.”
However, the National Franchised Dealers Association, which represents vehicle retailers, insisted its members stay with FCA rules.
Director Sue Robinson said: “Franchised retailers take rigorous steps to become compliant with consumer credit rules and may only offer car finance under strict conditions.”