PCP vs HP: Understanding Your Car Finance Agreement

Personal Contract Purchase (PCP)

PCP is one of the most popular forms of car finance in the UK. With a PCP agreement, you pay a deposit followed by monthly payments over a fixed period (typically 2-4 years). At the end of the agreement, you have three options: pay a final "balloon" payment to own the car, return the car, or use any equity as a deposit on a new agreement.

How PCP Can Be Mis-Sold

PCP agreements are particularly vulnerable to mis-selling through discretionary commissions because:

• The interest rate directly affects your monthly payments
• Dealers could increase the rate to earn higher commission
• The complexity of PCP makes it harder for consumers to compare rates
• The balloon payment structure can obscure the total cost of borrowing

Hire Purchase (HP)

With HP, you pay a deposit and then make fixed monthly payments over an agreed period. Once all payments are made, ownership of the vehicle transfers to you automatically.

How HP Can Be Mis-Sold

HP agreements can be mis-sold in similar ways to PCP:

• Hidden commission arrangements between dealer and lender
• Inflated interest rates that were not disclosed
• Failure to inform you about commission payments
• Restricting your choice to a single finance provider

Which Agreements Are Eligible?

Both PCP and HP agreements taken out between April 2007 and November 2024 may be eligible for a claim. The key factor is whether a discretionary commission arrangement was in place, not the type of agreement itself.

How to Check Your Agreement

You do not need your original finance documents to start a claim. A soft credit check can identify motor finance agreements linked to your name, including details about the lender and approximate dates.

Next Steps

If you had either PCP or HP finance during the eligible period, it is worth checking whether you may be entitled to compensation. The process is straightforward and will not affect your credit score.