HP vs PCP — what is the difference and can you claim on both?
Two ways to finance a car
If you have ever bought a car on finance in the UK, you almost certainly used one of two products: Hire Purchase (HP) or Personal Contract Purchase (PCP). Both are regulated credit agreements, and both were affected by the same commission practices that the FCA is now investigating.
How HP works
With Hire Purchase, you put down a deposit and pay fixed monthly instalments over a set period (typically 3 to 5 years). Once you have made all the payments, you own the car outright. There is no balloon payment and no option to hand it back — the goal from the start is full ownership.
HP agreements tend to have higher monthly payments than PCP because you are paying off the full value of the car, minus your deposit. However, you are not left with a large final payment at the end.
How PCP works
With PCP, your monthly payments only cover the car's depreciation — the difference between its value when you buy it and a predicted value at the end of the agreement (the Guaranteed Minimum Future Value, or GMFV). This means lower monthly payments, but at the end you have three options:
- Hand the car back with nothing further to pay (subject to mileage and condition terms)
- Pay the balloon payment to own the car
- Part-exchange the car and use any equity towards a new deal
Were both types mis-sold?
Yes. The discretionary commission arrangements (DCAs) that the FCA banned in January 2021 applied to both HP and PCP agreements. In both cases, the dealer could set the interest rate and earn more commission by charging you a higher rate.
The FCA's proposed Consumer Redress Scheme covers all types of regulated motor finance agreements entered into between 6 April 2007 and 1 November 2024, including:
- Personal Contract Purchase (PCP)
- Hire Purchase (HP)
- Conditional sale agreements
How do I know which type I had?
You may not remember the exact type of agreement you had, especially if it was several years ago. That is perfectly normal. When you use our free agreement finder tool, we retrieve the details of your historic finance agreements from credit reference agencies and vehicle registration databases — including the type of agreement and the lender involved.
What should you do?
Whether you had HP, PCP, or both, it is worth checking if your agreements were affected. The process takes under 60 seconds and will not affect your credit score.