When buying a car, many people opt for finance instead of paying outright. Two of the most popular options in the UK are Personal Contract Purchase (PCP) and Hire Purchase (HP). While both allow you to spread the cost of a vehicle over time, they work differently and suit different financial situations.
PCP (Personal Contract Purchase) and HP (Hire Purchase) are both ways to finance a car, but the key difference is what happens at the end of the agreement. With HP, you own the car after the final payment, but with PCP, you can return the car, pay a final lump sum to own it, or trade it in. PCP usually has lower monthly payments than HP.
What is PCP (Personal Contract Purchase)?
PCP is a flexible car finance option that allows you to drive a car with lower monthly payments compared to HP. However, at the end of the agreement, you won’t automatically own the car unless you pay a final lump sum, known as the balloon payment.
How Does PCP Work?
- Deposit – You usually pay a deposit, which is around 10% of the car’s value.
- Fixed Monthly Payments – You make lower monthly repayments over a set period (usually 2-4 years).
- Guaranteed Future Value (GFV) – The lender sets an estimated future value for the car.
- End of Agreement Options – At the end of the term, you can:
- Pay the balloon payment to keep the car.
- Return the car with nothing more to pay (as long as it’s in good condition and within the agreed mileage).
- Trade it in for a new PCP deal.
Pros of PCP:
✔ Lower monthly payments compared to HP.
✔ Flexible options at the end of the term.
✔ You can upgrade to a new car every few years.
Cons of PCP:
✘ You don’t own the car unless you pay the final lump sum.
✘ Mileage restrictions apply – exceeding limits results in penalties.
✘ You must return the car in good condition or face extra charges.
What is HP (Hire Purchase)?
HP is a straightforward finance option where you own the car at the end of the agreement. Monthly payments are higher than PCP, but there’s no final balloon payment.
How Does HP Work?
- Deposit – You typically pay 10% of the car’s value upfront.
- Fixed Monthly Payments – The cost is split into equal monthly instalments over 3-5 years.
- Ownership – Once the final payment is made, you automatically own the car.
Pros of HP:
✔ You own the car outright after the final payment.
✔ No mileage restrictions or condition penalties.
✔ Simple agreement with no balloon payment.
Cons of HP:
✘ Higher monthly payments compared to PCP.
✘ You can’t return the car at the end of the term.
✘ Less flexibility to switch to a new model frequently.
PCP vs HP: Key Differences
| Feature | PCP (Personal Contract Purchase) | HP (Hire Purchase) |
|---|---|---|
| Deposit | Usually 10% | Usually 10% |
| Monthly Payments | Lower | Higher |
| End of Term Options | Pay balloon payment, return, or upgrade | Own the car automatically |
| Ownership | Optional – depends on balloon payment | You own the car after the final payment |
| Mileage Limits | Yes – excess mileage fees apply | No restrictions |
| Condition Charges | Yes – must return in good condition | No charges |
Which Car Finance Option is Best for You?
The best option depends on your financial situation and personal preferences:
- Choose PCP if you want lower monthly payments and the flexibility to switch cars every few years.
- Choose HP if you prefer straightforward financing and want to own the car at the end of the term.
If you drive long distances, HP may be better since there are no mileage restrictions. However, if you like upgrading regularly, PCP provides more flexibility.
Have You Been Mis-Sold Car Finance?
Thousands of UK drivers have been mis-sold car finance without fully understanding the terms of their agreement. Common signs of mis-selling include:
- Being pressured into signing a finance deal without proper explanation.
- Not being informed about commission payments received by the dealer.
- Unfair or unclear fees and charges in the contract.
- Misleading information about the balloon payment or interest rates.
If you believe you were mis-sold PCP or HP finance, you may be entitled to compensation.
How Much Compensation Can You Claim?
The amount of compensation depends on:
- The amount you overpaid due to hidden charges.
- Whether you were misled about the total cost of the loan.
- Any financial losses you suffered as a result of the mis-selling.
Compensation can range from hundreds to thousands of pounds, depending on the severity of the mis-selling.
Mis-sold Vehicle Finance Claims Checker
Our mis-sold car finance claims calculator below estimates the level of compensation you may be able to reclaim for a mis-sold car finance agreement.
Add the value of your vehicle, the length of your agreement, and the interest rate you paid to the calculator below. Then, compare this against a rate that you may have been offered if you weren’t mis-sold.
Disclaimer : The Mis-sold Car Finance Claims calculation is illustrative, and under no circumstances should it be used or relied upon in the pursuit of a claim. If you need more help and clear understanding Contact National Claims Mis-sold Vehicle Finance Team.
How to Make a Car Finance Compensation Claim
If you suspect you were mis-sold PCP or HP finance, follow these steps:
1. Gather Evidence
- Your car finance agreement documents.
- Any emails or messages with the dealer or lender.
- Bank statements showing payments made.
2. File a Complaint
Start by raising a complaint with the lender. They have 8 weeks to respond.
3. Seek Legal Assistance
If the lender refuses your claim, National Claims can help you connect with experienced solicitors who specialise in car finance compensation cases.
Government and News Sources on Car Finance
Car finance mis-selling has gained significant attention in recent years, with many UK drivers seeking compensation. Useful resources include:
❓ People Also Ask
Q1. Is HP or PCP cheaper in the long run?
HP is usually cheaper if you want to own the car, because PCP adds interest to the balloon payment.
Q2. Can I sell the car with HP or PCP?
You can’t sell the car until you’ve paid off the finance. With HP, the car is yours after the final payment. With PCP, you must pay the balloon payment to own and sell it.
Q3. Does PCP affect my credit score?
Yes, both PCP and HP show on your credit report. Missing payments can hurt your credit.
Get Expert Help with Your Car Finance Claim
If you believe you’ve been mis-sold PCP or HP car finance, don’t wait – National Claims can put you in touch with experienced solicitors who will fight for your compensation.
Contact National Claims today to start your claim and get the compensation you deserve.
Final Thoughts
PCP and HP car finance are popular options in the UK, but it’s important to choose the right one based on your needs. While PCP offers flexibility, HP provides straightforward ownership.
However, if you’ve been mis-sold a car finance agreement, you have the right to claim compensation. Your car finance should have been clear and fair. If it wasn’t — you have rights. Let National Claims help you take the next step.
Contact National Claims today, and we will put you in touch with an expert solicitor who can guide you through the claims process.
📞 Call us now free 0800 029 3849 or 📩 Submit an online enquiry to speak to our team. Your safety and well-being matter, and we’re here to help.
Take action today and protect your financial rights!
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