PCP vs HP Finance — Which Claims Are Valid?

A common source of confusion in the car finance mis-selling scandal is whether HP (Hire Purchase) agreements are covered as well as PCP. The short answer is yes — both PCP and HP agreements are valid for claims, provided they meet the other eligibility criteria. This guide explains the key differences and exactly which agreement types qualify.

What Are PCP and HP Finance?

Both PCP and HP are forms of secured consumer credit used to buy a car. They differ mainly in how the monthly payments are structured and what happens at the end of the agreement.

PCP — Personal Contract Purchase

PCP is the most common car finance product in the UK, accounting for around 75–80% of all new car finance. Key features:

• Lower monthly payments because part of the car's value (the "balloon payment" or GMFV) is deferred to the end
• At the end, you choose: pay the balloon and own the car, hand it back, or use any equity as a deposit on the next car
• You never automatically own the car during the agreement

HP — Hire Purchase

HP is a more traditional form of car finance. Key features:

• Higher monthly payments because the full value of the car is spread over the term
• No large balloon payment at the end — you automatically own the car once all payments are made
• More common for used cars and for buyers who want the simplicity of ownership at the end

Which Finance Types Are Covered by the FCA Investigation?

Are HP Claims as Valuable as PCP Claims?

In terms of compensation amount, HP and PCP claims are calculated using the same methodology — the difference between the interest rate charged and the rate that would have applied without the inflated commission, plus 8% statutory interest per year.

HP agreements often had higher total interest because the full car value was financed (rather than a depreciated value as in PCP). This means HP claims can sometimes be worth more than equivalent PCP claims, particularly on lower-value used cars where PCP would not have been offered.

How Do I Know What Type of Finance I Had?

Your original finance agreement documents will state the type of finance. If you no longer have them:

• Check your credit file via Experian, Equifax or CheckMyFile — the agreement type is usually listed
• Think about whether you had a balloon payment option at the end — if yes, it was PCP
• If you automatically owned the car when you finished paying, it was likely HP
• MotorRedress can help identify the agreement type from your lender's records

What About PCH (Personal Contract Hire / Leasing)?

PCH — commonly called car leasing — is not covered by the FCA's investigation. This is because under a PCH agreement, you never have the option to own the car. The discretionary commission arrangement issue relates specifically to the interest rate charged on credit used to purchase the vehicle. Since a lease does not involve purchasing the vehicle, the DCA framework does not apply.

However, if you leased a car and then at the end took out a separate finance agreement to purchase it, that purchase agreement could potentially qualify if it met the other criteria.

Can I Claim for Multiple Agreements?

Yes. If you have had multiple PCP or HP agreements between April 2007 and January 2021, you can make a separate claim for each qualifying agreement. Each claim will be assessed on its own merits, and compensation will be calculated for each agreement independently.

To understand eligibility in more detail, read our comprehensive guide: How to Check If You're Eligible for a PCP Claim.