How are PCP claims calculated?
- Claim-Smart Contributor
- Jul 3
- 4 min read
PCP claims are currently calculated using a method created by the Financial Conduct Authority (FCA), which estimates how much you may have lost because of undisclosed commission arrangements.
In most cases, compensation is based on both the extra interest you paid and the commission paid to the dealer, with extra interest added on top.
If you'd like some extra guidance making a PCP claim, Claim-Smart can help.
If you're thinking about making a PCP claim, one of the first questions you'll probably ask yourself is: how much compensation could I actually get?
The honest answer is that there isn't one fixed payout amount for everyone. Instead, lenders have been asked to look at the specific details of your finance agreement before calculating compensation. This calculation uses a method set out by the FCA called the Hybrid Remedy.
Here, we explain how PCP claims are currently being calculated, what factors affect your compensation and how you can get an idea of what you might be owed.
It's important to note that the FCA's proposed redress scheme is currently facing legal challenges. Therefore, while this guide lays out the FCA's current methodology, this could change depending on the outcome of the case.
If you're looking for a bit of extra support throughout the claims process, Claim-Smart can help. We can help you work out whether you may be entitled to a PCP claim and guide you through the process, including working out how much you may be paid.
How are PCP claims calculated?
In most cases, PCP claims are calculated using what the FCA calls the Hybrid Remedy.
Here’s how it works:
The lender looks at two figures.
The first is an estimate of how much extra interest you paid because of the hidden commission arrangement. This is called the ‘estimated loss’.
The second is the amount of commission the lender actually paid to the dealer for arranging your finance. This is referred to as ‘commission paid’.
Those two figures are then averaged to get a number, known as the Hybrid Calculation. On top of that, interest is added at the Bank of England base rate plus 1% (with a 3% minimum), calculated from the date of each overpayment.
What is meant by ‘the estimated loss’ in PCP claims calculations?
‘The estimated loss’ is designed to work out how much extra you may have paid because of the way your finance agreement was arranged by the lender.
Rather than trying to work out exactly what would have happened in every individual case, the FCA uses a standard method to work out what your finance might have cost if the commission hadn't influenced the interest rate. It then compares that with what you actually paid.
The difference between those two figures is known as the ‘estimated loss’.
However, it is only one part of the calculation. The lender also looks at the commission paid to the dealer before working out your final compensation.
Why does the commission matter?
The second part of the calculation looks at the commission paid by the lender to the dealer.
Many customers were never told that dealers could get commission for arranging the finance deal, or that this commission could influence the interest rate they were given.
Given it negatively impacted consumers, the FCA's calculation takes this commission into account when working out compensation.
Because it is the lenders that hold this information, it usually isn't something customers can calculate themselves.
Why do lenders average the two figures?
Rather than paying whichever figure is higher, the FCA asks lenders to average the estimated loss and the commission paid.
The aim of this average is to fairly compensate customers for their losses, without putting them in a better financial position than if the commission arrangement had been disclosed.
Is interest added to my PCP claim compensation?
Yes, if you're entitled to compensation, the FCA's current calculation also adds interest.
This is because consumers who overpaid will have been out of pocket for a long time.
The idea is that if the money was never unfairly taken, it could have increased with inflation. After all, £1,000 back in 2007 was worth more than it is today, 19 years later.
The interest is currently calculated using the Bank of England base rate plus 1%, with a minimum rate of 3%.
Because of this rule, older agreements may receive more interest because the money has been gone for longer.
An example of how a PCP claim is calculated
Imagine you took out PCP finance in 2018. After looking into your agreement, the lender works out that you paid £500 more in interest than you would have if the arrangement was fair. They also work out that they paid the dealer £900 in commission.
Rather than paying back one or the other, they average the two.
£500 (interest) + £900 (commission) = £1,400
£1,400/2 = £700 average
Compensatory interest would then be added at the base rate plus 1%, meaning your final payment could be higher than £700.
This is only an example, but it shows how the current methodology would work in practice.
Calculating your PCP claim
So, how are PCP claims calculated?
Within the FCA's current methodology, lenders estimate how much extra interest you paid because of the commission arrangement, compare that with the commission paid to the dealer, average the two and then add interest.
If you think you may have been affected by undisclosed commission arrangements on a PCP or HP agreement, it may be worth looking into your options.
You can complain directly to your lender for free, or you can speak to Claim-Smart if you would like support understanding the process and taking the next step.
*Please see our terms and conditions for our fee structure and cancellation terms.
[JB1]Potentially a bit dangerous to state this as we arent providing this to clients.