How Is My Car Finance Compensation Calculated? The Hybrid Remedy Explained
Scheme status (updated 5 August 2026): parts of the FCA motor finance redress scheme are temporarily suspended while the Upper Tribunal considers legal challenges. Lenders do not currently have to calculate or pay compensation under the scheme, the original decision and payment dates no longer apply, and no payment under the scheme is guaranteed. If the scheme proceeds, first payments are expected in 2027 at the earliest. Any dates mentioned below were set before the suspension.
The FCA’s PS26/3 redress scheme uses a standardised calculation to work out what each eligible customer is owed. For most people this is the Hybrid Remedy — the average of two figures: your estimated interest overpayment and the commission paid to the dealer. This guide explains exactly how the calculation works and what determines your payout.
The Two Remedies Under PS26/3
- The Hybrid Remedy — applies to the vast majority of eligible agreements. Explained in full below.
- The Johnson Remedy — applies where commission was exceptionally high (at least 50% of total cost of credit AND 22.5% of the loan amount). Pays full commission repayment rather than the averaged hybrid amount. See: The Johnson Remedy Explained
Your lender assesses which remedy applies. You do not need to specify — if the Johnson Remedy threshold is met it must be applied.
How the Hybrid Remedy Works — Step by Step
Step 1 — Calculate the estimated interest overpayment
The FCA uses a standardised APR adjustment to estimate how much more interest you paid than you would have paid without the DCA commission inflation:
- Post-April 2014 agreements: 17 percentage point APR adjustment — so if you paid 9% APR, the calculation treats a fair rate as around 5%, and the difference in total interest is your estimated overpayment
- Pre-April 2014 agreements: 21 percentage point adjustment, reflecting higher commission inflation in earlier years
Step 2 — Calculate the commission paid
Your lender has records of exactly how much commission it paid to the dealer on your agreement. They must disclose this as part of the PS26/3 process — you do not need to prove it.
Step 3 — Average the two figuresYour base redress = (Estimated interest overpayment + Commission paid) ÷ 2
Step 4 — Add compensatory interest
Bank of England base rate plus 1% per year, minimum 3% per year, from the date of each overpayment to the date of your payment. This compounds significantly on older agreements — a 2009 agreement has 17+ years of interest stacked on the base redress.
A Worked Example
A £12,000 HP agreement in 2016 at 11% APR. Dealer commission: £800.
- Estimated interest overpayment (17% adjustment): approximately £680
- Commission paid: £800
- Base hybrid redress: (£680 + £800) ÷ 2 = £740
- Compensatory interest (10 years at ~4%): approximately £296
- Total estimated payout: approximately £1,036
What Increases Your Payout Above £829?
- Higher loan amount: larger loans generate larger commissions and larger absolute overpayments
- Higher interest rate: more overcharged relative to the fair rate = larger estimated overpayment
- Older agreement: every additional year adds more compensatory interest
- High commission: lenders where DCAs were aggressively used — Black Horse, Santander, Barclays — tended to generate higher individual commissions
- Premium vehicle: higher-value vehicles had higher loans and typically higher dealer commissions
- Multiple agreements: each eligible agreement is calculated separately
Credit File Correction
In addition to cash compensation, PS26/3 requires lenders to correct your credit file where the mis-sold agreement caused adverse marks — missed payments, defaults or CCJs linked to the inflated repayments. See: Car Finance Claim — Credit File Correction
What If You Disagree With the Calculation?
When your lender sends a redress determination it must include a full breakdown. If you believe the calculation is wrong you can challenge the lender directly, escalate to the Financial Ombudsman Service for free (the FOS can increase the offer but cannot reduce it), or check whether the Johnson Remedy should have been applied instead.
Frequently Asked Questions
The average is £829 but my loan was much larger. Why might I get more?
£829 is a national average across 12.1 million agreements including small loans with low commissions. High-value vehicle finance, older agreements and lenders with aggressive DCA use all produce above-average payouts. Use the calculator to estimate your specific figure.
How does the calculation work if I settled my agreement early?
Early settlement reduces the total interest paid but does not eliminate your claim. The calculation covers interest and commission up to the point of settlement. See: Claiming After Early Settlement
Is the compensation taxable?
The base redress is generally not taxable — it is a return of overpaid money. Compensatory interest may be subject to income tax depending on your circumstances. See: Car Finance Compensation and Tax
Related Guides
FCA Car Finance Redress Scheme Explained
Car Finance Claim — Credit File Correction
Back to Car Finance Claims Hub
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Think You May Have a Motor Finance Claim?
The FCA estimates average compensation of around £830 per eligible agreement, but eligibility and payment amounts vary. Some customers may receive nothing. Complaints about agreements started from 1 April 2014 should be submitted by 30 June 2026 to be considered under the earlier timetable. Different dates apply to older agreements. The scheme is currently subject to legal challenge, so dates and payment timings may change.
