One third (34%) of British consumers expect car dealers to earn commission on vehicles bought on finance, and a further 28% don’t mind so long as they’re informed, according to new research from Close Brothers Motor Finance.
This news comes as the FCA introduces new regulation for the motor finance industry, which comes into force on 28th January 2021. The changes include banning pricing models which link dealer commission to an interest rate, and clarifying commission disclosure rules. The intention of these changes is to ensure fairer and more consistent outcomes, and increase transparency around finance for customers.
Consumers accept commission: a mere 13% of consumers don’t think dealers should earn commission when vehicles are purchased on finance, although this rises to 18% amongst millennials (age 25-39). Contrastingly, just 9% of baby boomers (55-74) think dealers shouldn’t earn commission.
But while people are comfortable with dealers earning commission, they do think they should be told. Half of consumers think the dealer is responsible for informing them about commission. 18% think the responsibility lies with the finance provider, and 8% with the media. Baby boomers put most weight on the dealers at 61%, with only 16% thinking it should be the finance provider. Gen Z offer a counterbalance; just 36% think it should be the dealer, with 26% believing the finance provider is responsible.
Thanks to the clarified commission disclosure rules and guidance, consumers will have even more transparency and clarity over finance agreements. The research reveals that the majority of people are comfortable with the concept of discussing commission with their dealer. 21% are very comfortable, and a further 32% are fairly comfortable. 38% are indifferent, leaving just 10% of consumers uncomfortable.
Men are more comfortable discussing commission than women, at 58% vs 47%. 12% of women are actively uncomfortable, compared to 7% of men.
When it comes to what impacts the cost of finance more broadly, 35% of consumers believe that their credit score is the deciding factor. 21% think the motor finance provider has the biggest sway, 20% the dealership, and 17% the bank provider. 14% of consumers believe it depends on their own negotiation skills – which is truer for men (16%) than women (14%).
Seán Kemple, Managing Director of Close Brothers Motor Finance, commented: “For consumers, there’s a lot to think about when buying a car this year. The economy has been hit hard by Covid-19 and Brexit, and at the same time we’ve seen changing regulation around fuel type and congestion. Private car ownership has also become more appealing, with reticence around public transport and a fall in company cars. And we have seen the numbers of cars bought on finance rise significantly.
“That’s why it’s really positive that the FCA is again focused on supporting customers. Commission works well across a variety of industries which involve products being sold via intermediaries, including mortgages, pensions, and insurance. The new changes to motor finance will ensure that the interest rate people pay on their finance agreement is based on their own individual circumstances, and that there is complete transparency around the commission a dealer is earning. This means customers can be confident in their judgement of the impartiality of a dealer before they make a decision about how to fund their vehicle purchase.
“Transparency and consistency have always been a priority for us as a responsible lender, and we’re working closely with our dealer partners to ensure that they are confident in what the changes mean for their businesses, while minimising disruption to the business or sales figures.”
Three top tips if you’re buying a car on finance
1) Do your research
Last year, people spent an average of 24 hours researching their car before they bought it . As well as thinking about the best fit for fuel and comfort, make sure you put pen to paper and do some research around price and finance agreements. Check out the Money Advice Service’s resources on car finance.
2) Read the fine print
The new FCA rules mean all of the detail around pricing structures and commission will be laid out in the documents shared with you by your dealer & finance provider. Read all documents carefully – they'll explain whether a dealer is receiving a payment for arranging a finance deal for you, and you can ask them for more detail if you’re interest.
3) Ask questions
If you’ve got any concerns or uncertainties, ask the experts – car dealers are trained and ready to help you with any questions you may have. The new FCA rules mean they have to make you aware of the commission process, and where to get more information – so you can chat to them and make sure you’re totally comfortable before signing any documents.
