PCP vs HP
Two products, two different stories.
Personal Contract Purchase (PCP) and Hire Purchase (HP) are the two most common ways to finance a car in the UK. They work differently in structure, ownership, and monthly payments — but both fall within the FCA’s motor finance redress scheme where a discretionary commission arrangement was in place.
What is PCP?
With Personal Contract Purchase, you pay a deposit, fixed monthly payments over a typical 2–4 year term, and a large optional “balloon” payment at the end. The monthlies are lower because you’re only paying off the car’s expected depreciation, not its full price.
At the end of the agreement you have three choices: pay the balloon and keep the car, hand it back, or part-exchange and start a new agreement. The lender owns the car throughout the term.
What is HP?
Hire Purchase is the more straightforward of the two. You pay a deposit, then equal monthly payments that cover the full price of the car plus interest, typically over 2–5 years.
Once the final payment is made, the car is yours automatically. There’s no balloon payment and no mileage limit. Monthly payments are higher than the equivalent PCP because you’re paying the whole car off, not just its depreciation.
Side by side
| PCP | HP | |
|---|---|---|
| Ownership during the agreement | Lender owns the car | Lender owns the car |
| Ownership at the end | Optional — pay the balloon to keep it, or hand it back | Yours, automatically, once the final payment is made |
| Monthly payments | Lower (you’re only financing the depreciation, not the full price) | Higher (you’re financing the full price) |
| Final balloon payment | Yes — a large optional final payment if you want to keep the car | No |
| Mileage limits | Yes — excess mileage charges if you exceed | No |
| Best suited to | Drivers who want flexibility and lower monthlies | Drivers who want to own outright at the end |
| In scope of FCA redress? | Yes, if a discretionary commission was in place | Yes, if a discretionary commission was in place |
Does the type matter for my claim?
Not for eligibility — both PCP and HP fall within the FCA’s redress scheme where a discretionary commission arrangement applied. The DCA was about how the dealer set your interest rate, not which product you chose.
It can affect the size of the redress, though. Because HP monthlies are higher and the full purchase price is being financed, the interest paid — and any rate uplift — tends to be larger in cash terms.
Not sure which you had?
Use the eligibility checker and pick “Don’t know.” We’ll still give you an indicative answer.
General information only. Not legal or financial advice.