PCP vs HP Finance: What's the Difference and Who Can Claim?

When people talk about the UK car finance mis-selling scandal, the focus is often on PCP (Personal Contract Purchase) — but HP (Hire Purchase) agreements were also widely affected. Understanding the difference between these two types of finance can help you work out whether you have a potential claim.

What Is PCP Finance?

Personal Contract Purchase is the most popular car finance product in the UK, accounting for the majority of new car sales in recent years. Here is how it works:

• You pay a deposit upfront (typically 10% of the car's value)
• You make monthly payments for an agreed term (usually 2–4 years)
• At the end, you choose: hand the car back, pay a balloon payment to own it, or trade in and start a new agreement

The key feature of PCP is that your monthly payments are lower than HP — because you are only paying off the depreciation in the vehicle's value, not the full cost. The catch is that final balloon payment, which can be substantial.

PCP is technically a form of conditional sale — you do not own the car during the agreement, and there are usually mileage limits.

What Is HP Finance?

Hire Purchase is simpler and older than PCP. Under an HP agreement:

• You pay a deposit (optional but common)
• You make equal monthly instalments over the agreed term
• At the end, you own the car — no balloon payment, no option to hand back

HP spreads the full cost of the car over the payment period, so monthly payments are typically higher than PCP for the same vehicle. But at the end, ownership transfers automatically.

HP is popular for used car purchases and for consumers who want the certainty of owning the car at the end of the term.

How Were Both Types Affected?

Both PCP and HP agreements were sold through car dealerships, and both were subject to the discretionary commission arrangement (DCA) practice that the FCA is now investigating.

Under DCAs, the finance company gave the dealership the ability to set the interest rate within a range. The higher the rate, the more commission the dealer earned — creating an incentive to charge customers as much as possible, regardless of whether they could get a better rate elsewhere.

This applied equally to PCP and HP deals. Whether you walked out with a PCP or HP agreement, if your dealer had the ability to flex your interest rate and earn more for doing so, you may have been overcharged.

The Key Differences for Claims

While both products were affected, there are some differences worth noting when it comes to claims:

For PCP claims:

• The interest rate forms part of the overall cost including the balloon payment structure
• You may not have realised the full interest cost because the monthly payments were relatively low
• The commission element is often buried in the total cost of credit

For HP claims:

• All interest costs are spread evenly across your monthly payments
• The calculation of excess interest paid is often more straightforward
• Older HP agreements (pre-2015) may have different documentation standards

In practice, the claims process for both types of agreement is very similar. The critical question in each case is whether there was an undisclosed commission arrangement on your finance.

Which Lenders Are Affected?

The FCA's investigation covers virtually all major motor finance lenders who were operating in the UK during the 2007–2021 period. The most commonly named lenders in claims include:

• Black Horse (part of Lloyds Banking Group)
• Close Brothers Motor Finance
• MotoNovo Finance
• Santander Consumer Finance
• Toyota Financial Services (and Kinto Finance)
• Volkswagen Financial Services
• BMW Financial Services
• Stellantis Financial Services
• Ford Credit Europe

This is not an exhaustive list. If you had car finance arranged through a dealership between 2007 and 2021, your lender was almost certainly subject to the investigation regardless of whether they are named above.

Can I Claim for Both PCP and HP?

Yes. If you had multiple finance agreements — whether both PCP, both HP, or a mixture — you may be eligible to claim on each one separately.

What About PCH or PCP with a Fleet Company?

Personal Contract Hire (PCH, also known as leasing) is different. Under PCH, you are effectively renting the vehicle — you never have the option to own it and there is no balloon payment. PCH agreements are generally not covered by the FCA's investigation, which focuses on credit agreements under the Consumer Credit Act.

PCH agreements are outside the scope of current PCP/HP claims.

How Much Could You Claim?

The FCA has estimated average compensation of around £700 per eligible agreement under its proposed redress scheme. However, the actual amount depends on:

• The total value of the finance agreement
• The interest rate applied and how much higher it was than a fair rate
• The length of the agreement
• Whether the excess interest was on a PCP or HP structure

Larger loans at higher interest rates over longer terms typically result in higher compensation amounts. Some consumers have received several thousand pounds per agreement.

Next Steps

If you had a PCP or HP agreement taken out between 2007 and 2021, the next step is to check your eligibility. You can do this for free using The PCP Team's online checker — it takes under 2 minutes and covers both PCP and HP agreements.

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The PCP Team is a trading style of Credit Claim Assist Ltd, authorised and regulated by the Financial Conduct Authority for claims management activity (FRN 832480).