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Who sets the APR on car finance, and can a dealer change it?

The lender sets the rates it will offer and makes the credit decision; the dealer is normally a credit broker introducing you to that lender rather than lending to you itself. Until 28 January 2021 that distinction mattered less than it should have, because some commission models linked a broker's commission to the interest rate and gave them discretion to adjust it — so raising your rate raised their pay. The FCA banned those discretionary commission arrangements from that date, and estimated consumers would save around £165 million a year as a result. Since then a broker's commission cannot be linked to a rate they set, though the rate you are offered still varies by lender, term, deposit, the age of the car and your credit profile.

Two roles that are easy to confuse

On a typical dealer-arranged agreement there are two businesses, not one. The lender is the finance company whose name is on the agreement: it decides which rates it will offer, assesses your application and carries the credit risk. The dealer is normally a credit broker, introducing you to that lender and paid a commission for doing so.

That is why the rate is not simply “the dealer’s price” and not purely the lender’s either: the lender sets what is available, and the broker’s role is where the historic problem sat.

What changed on 28 January 2021

The FCA banned discretionary commission arrangements in motor finance with effect from that date. Those were commission models that tied a broker’s commission to the customer’s interest rate while giving the broker wide discretion to set or adjust it — so a broker who raised your rate was paid more for it. The FCA described the incentive plainly and estimated the ban would save consumers around £165 million a year. The same package changed what customers must be told about commission, and those disclosure rules apply to credit brokers generally rather than only to motor finance.

Source: FCA — FCA to ban motor finance discretionary commission models and Policy Statement PS20/8. Re-checked 19 September 2026.

If you took finance out before that date, the arrangement that has since been banned may have applied to your agreement. That is a separate question with its own process, and it is covered in am I owed car finance compensation.

What still moves the rate

Plenty, and none of it is a single national figure. The lender, the type of agreement, the term, the deposit, the age and expected value of the car at the end, and your credit file all change what you are offered. Two lenders can quote materially different rates on the same car on the same day — which is an argument for collecting more than one quote, not for trusting a benchmark you read somewhere.

When you compare offers, compare the APR and the total amount payable, both of which a regulated agreement must disclose before you sign. A longer term lowers the monthly payment while raising what the car costs you overall, so the monthly figure is the one number that most reliably misleads. Our car finance calculator works those figures for a loan quote you have been offered, the hire purchase calculator adds the option-to-purchase fee and the same car on PCP, and the PCP calculator handles a final payment. Each is an example, not a quote. Handing a car back on finance covers what happens if you want out part-way.

Questions people ask

Is the dealer the lender on a PCP or HP agreement?
Usually not. On most dealer-arranged agreements the dealer acts as a credit broker and the finance company is the lender, which is why the agreement names a finance house rather than the showroom. It matters practically: your agreement, and most of your rights under it, are with the lender.
Can a dealer still earn commission on my finance?
Yes. Commission itself was never banned — what the FCA banned from 28 January 2021 was the DISCRETIONARY kind, where the broker could set or adjust your interest rate and earn more by raising it. The same rules changed what customers must be told about commission. A broker being paid for introducing you is normal; being paid more for charging you more is what stopped.
What does "front-loading" the interest mean?
It describes interest being weighted towards the early part of an agreement, so the balance falls more slowly at first than a straight-line reading would suggest. On any regulated agreement the figures that govern what you owe are the APR and the total amount payable, both of which must be disclosed before you sign, and early settlement is calculated under statutory rules rather than by the lender's preference. Compare those two figures between offers rather than the monthly payment.
Why do two lenders quote different rates on the same car?
Because they are pricing different risks and funding costs, and because the rate depends on the whole shape of the deal — the term, the deposit, the age and mileage of the car at the end, and your credit file. The same person can be quoted materially different rates on the same car on the same day, which is the argument for getting more than one quote rather than for assuming a benchmark.

Autoza is not authorised by the Financial Conduct Authority and does not give financial advice. This page explains how UK car finance is regulated and what the rules require. Any figures for your own agreement come from the lender that offers it.

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