PCP vs HP Finance — Which Qualifies for Compensation?

Both qualify. Here's the detail.

If you had a PCP (Personal Contract Purchase) or HP (Hire Purchase) car finance agreement between 6 April 2007 and 1 November 2024, both are covered by the FCA's motor finance redress scheme. The eligibility criteria are the same for both types. The commission structures that triggered the scheme existed across PCP and HP products alike.

But PCP and HP work differently, and it is worth understanding your agreement type — because it affects how much commission was likely charged and how the compensation is calculated.

What is PCP?

PCP — Personal Contract Purchase — is the most common way to finance a new car in the UK. You pay a deposit, then make monthly payments for a fixed term (typically 3 or 4 years). At the end, you have three options: pay a final “balloon” payment to own the car outright, hand the car back and walk away, or use any equity as a deposit on a new PCP deal.

The key feature of PCP is that your monthly payments only cover the car's depreciation — the difference between its price when you bought it and its predicted value at the end of the agreement (the Guaranteed Minimum Future Value, or GMFV). This means lower monthly payments compared to HP, but you do not own the car unless you make the balloon payment.

PCP was the product most commonly associated with Discretionary Commission Arrangements. Dealers arranging PCP finance could adjust your interest rate upward within the lender's allowed range, earning more commission the higher they set it. Because PCP interest is calculated on the full amount financed (not just the depreciation portion), the impact of a higher rate was significant — often hundreds of pounds over the term.

What is HP?

HP — Hire Purchase — is the simpler of the two. You pay a deposit, then make fixed monthly payments for the full cost of the car. Once all payments are made, you own the vehicle outright. There is no balloon payment, no hand-back option, and no residual value calculation.

HP monthly payments are higher than PCP because you are paying off the whole car, not just the depreciation. But you end up owning the vehicle, which many people prefer.

HP agreements also carried commission arrangements — DCAs, high commissions, and contractual ties all existed in the HP market. The commission structure worked the same way: a higher interest rate set by the dealer meant more commission, at your expense, without your knowledge.

Both qualify under the same criteria

The FCA's three unfairness triggers apply identically to PCP and HP:

Discretionary Commission Arrangement (DCA): The dealer could adjust your interest rate upward to earn more commission. Present in both PCP and HP agreements.

High commission: The commission was at least 39% of the total cost of credit AND at least 10% of the loan amount, and you were not informed. This threshold applies equally to both product types.

Contractual ties: The dealer was required to use a specific lender or give a lender first refusal, without your knowledge. This occurred across both PCP and HP products.

The exclusions are also the same: zero APR deals are not covered, commission below £150 (or £120 for pre-April 2014 agreements) is excluded, and high-value loans above the 99.5th percentile are out.

What about other finance types?

Personal loans used to buy a car are not covered by this scheme. A personal loan from a bank is a different product — it is not arranged through a dealer and does not involve the same commission structures. If you borrowed money from your bank and used it to buy a car, this scheme does not apply.

Personal Contract Hire (PCH) / leasing is not covered. PCH is a rental agreement — you never own the car and there is no finance product in the same sense. The commission arrangements at the centre of this scheme applied to credit agreements, not leases.

Zero APR finance is excluded from the scheme. If you paid no interest, the commission structure did not cost you anything, even if it existed. No consumer detriment, no compensation.

Manufacturer deposit contributions and special offers do not affect your eligibility. Even if you received a manufacturer cash incentive or deposit contribution, the commission arrangement on your underlying finance agreement is a separate issue.

Multiple agreements — each one counts

Many people have had more than one car finance agreement over the 17-year period the scheme covers (2007–2024). Each agreement is a separate claim.

If you had a PCP on a Volkswagen Golf in 2015, an HP agreement on a Ford Focus in 2018, and another PCP on a BMW 3 Series in 2021, that is three separate potential payouts. At the average of £829 per agreement, three claims would total approximately £2,487.

Frank tracks each claim separately — different lenders, different deadlines, different eligibility assessments. This is particularly useful if your agreements span both scheme periods (pre and post April 2014), as the timelines are different for each.

Common lenders by finance type

PCP tends to be manufacturer-linked. BMW Financial Services, Mercedes-Benz Financial Services, Volkswagen Financial Services, Toyota Financial Services, Ford Motor Credit, and similar. These are the captive finance arms of car manufacturers, and they dominated the PCP market.

HP is more often arranged through independent finance companies. Black Horse (part of Lloyds), MotoNovo Finance, Close Brothers Motor Finance, and Startline Motor Finance are common. These lenders worked with multi-brand dealerships and used car dealers.

Both groups had commission arrangements that are covered by the scheme.

Not sure which type you had?

If you cannot remember whether your finance was PCP or HP, there are a few ways to check. Your original paperwork will state the agreement type. Your credit report (free from Experian, Equifax, or TransUnion) will show the type of credit product. And if you made a large final “balloon” payment to keep the car — or handed it back at the end — it was PCP. If you simply made monthly payments and then owned the car, it was HP.

If you are still unsure, it does not matter for the purposes of starting your claim. Both types are covered. Frank will identify your agreement type as part of the assessment.