PCP vs HP Claims: Understanding the Difference
When the FCA and the courts talk about the motor finance mis-selling scandal, they refer to both PCP (Personal Contract Purchase) and HP (Hire Purchase) agreements. MotorRedress (www.motorredress.co.uk) regularly receives enquiries from drivers who are unsure whether their agreement type qualifies, or whether the type of agreement affects their claim value. This article clarifies both products, explains why both are covered, and outlines the practical differences in how claims are assessed.
What Is PCP?
Personal Contract Purchase is a three-stage car finance product:
- Deposit: typically 10% of the vehicle's on-the-road price.
- Monthly repayments: calculated on the depreciation element plus interest, not the full vehicle value.
- End-of-term options: pay the Guaranteed Minimum Future Value (GMFV) to own the car; hand the car back with nothing more to pay (subject to mileage and condition); or use any positive equity as a deposit on a new agreement.
Because monthly payments only finance the depreciation rather than the full vehicle price, PCP generates lower monthly outgoings than HP for the same vehicle. This made it extremely popular: by 2019, PCP accounted for approximately 78% of all new private car registrations financed through the Finance & Leasing Association's members.
What Is HP?
Hire Purchase is a more traditional product. You pay a deposit, then make monthly instalments that cover the full remaining vehicle price plus interest. Ownership transfers to you automatically when the final payment is made — there is no optional balloon payment or GMFV.
HP was more common before PCP's rise to dominance, but remained popular for used car purchases, where the lower absolute vehicle values made the balloon payment structure less attractive. Approximately 22% of the Finance & Leasing Association's consumer car finance portfolio was HP by the late 2010s.
Why Both Products Are Affected
The mis-selling did not occur because of the PCP or HP structure. It occurred because of how commissions were paid to dealers who arranged the finance. Under a Discretionary Commission Arrangement (DCA), the lender gave the dealer a range of permissible interest rates, and the dealer could earn a higher commission by setting a higher rate — regardless of whether the product was PCP or HP.
As the FCA found in its 2021 review, this incentive structure existed across both product types. The Supreme Court ruling in [2025] UKSC 33 applies to credit brokers (including car dealers) acting for lenders — it is not specific to PCP. Accordingly, both PCP and HP agreements written under DCA arrangements are eligible for redress.
Key Differences That Affect Claims
While both product types are covered, there are structural differences that can affect the size of the claim rather than the eligibility.
1. Interest Calculation Base
In a PCP agreement, interest is charged on the total amount of credit advanced, but the monthly payment calculation is based on the depreciation element (total credit minus GMFV). The interest that accrues over the term is spread across a smaller payment stream. This means the interest rate differential (between what you were charged and what you should have been charged) is applied to a larger nominal balance than your monthly payments might suggest.
In an HP agreement, the entire credit amount is amortised over the term. There is no balloon payment. This means the interest base is fully amortised, and the excess interest calculation is more straightforward.
For claims purposes, both calculations measure the same thing — the financial loss caused by the inflated rate — but the arithmetic path is different.
2. Total Credit Advanced
PCP agreements, particularly for new vehicles, often involve higher total credit amounts than HP agreements (which were disproportionately used for lower-value used cars). Higher credit amounts generally mean larger absolute commission figures and larger excess interest components.
3. Agreement Length
PCP agreements were typically 24–48 months, while HP agreements could run to 60 months or more. Longer agreements mean more monthly payments containing an inflated interest element, and more restitutionary interest accruing from each payment.
4. End-of-Term Crystallisation
At the end of a PCP agreement, if you paid the balloon payment to own the car outright, you made one very large additional payment. To the extent that the balloon payment included any interest element that was inflated by the DCA, that could also form part of your redress calculation — though in practice balloon payments are typically not interest-bearing.
For HP agreements, ownership transferred automatically with no additional payment, so this distinction does not apply.
Do Fixed-Rate Agreements Qualify?
Some finance agreements used a fixed commission model rather than a discretionary commission arrangement. Under a fixed commission model, the dealer received the same commission regardless of the interest rate set, so there was no incentive to overcharge.
The FCA's ban in January 2021 targeted specifically discretionary commission arrangements. The Supreme Court ruling in [2025] UKSC 33 similarly focused on the conflict of interest created by the dealer's ability to influence the rate in their own financial interest.
If your agreement used a fixed commission model, you are likely outside the scope of the DCA redress scheme. However:
- The disclosure obligation still applied. If you were not told that any commission was being paid at all, you may have a claim under the undisclosed (as opposed to discretionary) commission route — though this is less straightforward.
- Determining whether your agreement used a fixed or discretionary commission requires reviewing the specific lender's terms, which your lender must disclose in response to a Subject Access Request.
Other Finance Products: What's Not Covered
The following motor finance products are generally outside the DCA redress scope:
- Personal contract hire / leasing: you never had an option to own the vehicle, so there was no credit relationship in the same sense.
- Directly arranged bank loans: if you took a personal loan from your bank and then bought the car for cash, the dealership was not acting as a credit broker in the relevant sense.
- Business finance: claims are limited to retail consumers. If the vehicle was financed in the name of a limited company or partnership, the retail consumer protections do not apply.
- Agreements after 27 January 2021: DCAs were banned from this date, so agreements entered into after the ban are not covered.
Practical Steps: Identifying Your Agreement Type
Your original finance agreement documentation should state whether the product was PCP or HP. Key indicators:
- PCP: look for references to "Guaranteed Minimum Future Value", "optional final payment", or "balloon payment".
- HP: the agreement will show that all monthly payments fully amortise the credit, with ownership transferring on the final payment.
If you do not have the original documentation, your lender must provide it on request under a Subject Access Request (SAR). Under UK GDPR, they have 30 days to respond. Send the SAR in writing (email is sufficient) requesting all personal data held, specifically including the original finance agreement and any commission disclosure records.
Summary Table
| Feature | PCP | HP |
|---|---|---|
| Eligible for DCA redress? | Yes | Yes |
| Typical credit amount | Higher (new cars) | Lower (used cars) |
| Monthly payment structure | Depreciation + interest | Full amortisation |
| Balloon payment at end | Yes (GMFV) | No |
| Typical term | 24–48 months | 36–60 months |
| Redress calculation | Slightly more complex | More straightforward |
| Average claim value | ~£700 | ~£550–£650 |
Conclusion
Both PCP and HP agreements are covered by the motor finance DCA redress scheme. The product type affects the mechanics of the compensation calculation, but does not determine eligibility. If your car was financed through a dealership between 2007 and 2021 — regardless of whether it was PCP or HP — you should check whether a DCA was in place.
To assess both your PCP and HP agreements, visit MotorRedress for a free eligibility check.
This article is for educational purposes only. Compensation amounts vary. Eligibility criteria apply.
Originally published on MotorRedress
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