PCP vs HP Car Finance: Find out if YOUR financing options make you eligible for a claim of up to £1,000
PERSONAL Contract Purchase (PCP) and Hire Purchase (HP) are two convenient and cost-effective ways to buy a car, enabling you to spread the cost over several years.
It’s important you understand the costs and implications of any finance deal before signing, or you could sign up for something you regret.
Don’t think that could happen? It’s estimated that between the lender and dealer. The result was higher borrowing costs for drivers. That’s money you could be owed back. If you’ve previously bought a car with PCP finance or HP finance, you could be owed thousands – and we’ll show you how to make a claim with .
Check if you could claim for mis-sold car finance below
Personal Contract Purchase, or PCP, is a popular car financing option in the UK that allows you to spread the cost of owning a car over a fixed term. Effectively, with PCP, your payments cover the depreciation of the car. You also have the option to purchase the car outright at the end of the contract, but you don’t have to.
It begins with an initial deposit and is followed by monthly payments spread across several years. You’ll find that monthly payments are often lower when compared to other finance options; that’s because you won’t own the car at the end of the agreement.
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At the end of the term, you can choose to make a final 'balloon payment' to own the car, return the car, or trade it in for a new one.
What are the benefits and disadvantages of PCP?
Benefits of PCP
- You’ll typically pay less each month for a PCP deal when compared to other options (including HP). This is because you’re only paying for the car’s depreciation during the term.
- PCP provides plenty of flexibility. At the end of the contract, you have multiple options, including buying the car, returning it, or trading it in for a new one.
- You can use PCP to buy a new, nearly-new or used car, giving you a choice of the market. You can drive the latest model and upgrade frequently if you want to.
Disadvantages of PCP
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- A PCP agreement usually comes with mileage limits, which can result in additional charges if you drive more miles than you should.
- The car must also be returned in good condition, or again, you may face extra charges for any damage, dents and repairs that will need to be done.
- You won’t own the car until you make the final balloon payment. If you decide not to make the balloon payment, you’ll have nothing to show for the cash you’ve spent.
Check if you could claim for mis-sold car finance below
What is HP?
Hire Purchase or HP, is a straightforward car financing option where you pay an initial deposit, which is then followed by fixed monthly payments over an agreed period - typically 1-5 years.
Unlike PCP, HP payments go towards paying off the entire value of the car, and once all payments are made, you own the car outright.
What are the benefits and disadvantages of HP?
Hire Purchase, or HP, is a straightforward car financing option where you pay an initial deposit, which is then followed by fixed monthly payments over an agreed period - typically 1-5 years.
Unlike PCP, HP payments go towards paying off the entire value of the car. Once all payments have been made, you will own the car outright.
What are the benefits and disadvantages of HP?
Benefits
- HP allows the car’s financier to own the car outright at the end of the finance term, with no mileage restrictions - meaning you can drive the car as much as you like without worrying about extra charges.
- The terms are straightforward, with no final balloon payment at the end.
Disadvantages
- The monthly payments are typically higher than with PCP because you’re paying off the car’s full value.
- Once you’ve made the final payment, the car is yours. There’s no obligation for the dealer to take it back as a return or trade-in. You’ll need to negotiate a private sale or dealer trade-in, which can be hard work and a bit of a hassle.
- The car’s value will also depreciate over time. While this is normal, it may cause problems if you prefer to change cars frequently.
What are the main differences between HP and PCP?
The biggest difference between PCP and HP is car ownership. With PCP, you’re only paying the depreciation of the vehicle. At the end of a PCP deal, you’ll have the choice to pay the balloon payment to own the car. That could be thousands of pounds. With HP, you’re paying off the total value of the car.
Why not choose HP? For the same car, HP payments will be higher each month than PCP. It often comes down to budget.
Ultimately, PCP offers more flexibility at the end of the contract, allowing you to choose between buying the car, returning it, or trading it in, while with HP, the car simply becomes yours once all payments are made.
PCP agreements usually come with mileage limits and condition requirements, while HP does not impose these restrictions.
At the end of the term, PCP includes a final balloon payment if you choose to buy the car, whereas HP does not have this final payment, as the car’s cost is spread evenly.
Let’s compare the two options on four key aspects that matter to every driver:
1. Ownership
- HP: You are the registered keeper of the car during the agreement, the lender retains legal ownership until the final payment, including a small ‘option to purchase’ fee. Once paid, the car is yours outright.
- PCP: You do not automatically own the car. At the end of the agreement, you can pay a ‘balloon payment’ to purchase the vehicle, return it, or trade it in for a new one.
2. Monthly Payments
- HP: Monthly payments are typically higher as you are paying off the full cost of the vehicle over the term of the agreement.
- PCP: Monthly payments are usually lower because they only cover the car’s depreciation during the term, plus interest, not the entire vehicle value.
3. Flexibility at the End of the Term
- HP: Offers no flexibility. You pay the full price of the vehicle over time and then own it outright.
- PCP: Provides more flexibility with three options: pay the balloon payment to keep the car, return it to the lender or use any remaining equity to trade in for a new vehicle.
4. Upfront Costs
- HP: A deposit is optional in most cases, and agreements can often be arranged without one.
- PCP: Similarly, most PCP agreements do not require a deposit, making them accessible for those who prefer not to pay upfront.
Check if you could claim for mis-sold car finance below
Car finance claims: A I eligible to claim for mis-sold finance?
Did you buy a car on PCP or HP finance between 2007 and 2021? You could be in line for a payout.
It turns out that finance companies and car dealers were working together to inflate interest rates for borrowers.
How did this happen? Car dealers were acting as loan brokers and earned a commission based on the interest rate charged. The higher the interest rate on loans, the more commission cash they earned.
As a result, car dealers were incentivised to charge higher rates – even in cases where drivers qualified for lower rates.
It is estimated that .
If yours was one of these, you could be in line for a payout. The case is currently going through the courts, as Martin Lewis, the explains.
While compensation isn’t guaranteed, it’s important that you as soon as possible.
Were HP and PCP financing options affected by mis-sold finance?
Yes, the mis-selling scandal covers both PCP and HP claims, as Martin Lewis makes clear. In both cases, car dealers took commission payments, earning more money for higher interest rates.
If you bought a car on PCP finance or HP finance, you should make a claim and could be eligible for a payout.
Summary: PCP vs HP
- HP: Ideal for individuals who want to own the car outright and keep it for the long term. It’s a straightforward option for those who prefer fixed costs and no surprises. Choose HP if you want full ownership of the vehicle and can manage higher monthly payments.
- PCP: Perfect for those who like to change their car regularly or are uncertain about committing to ownership. Lower monthly payments and the flexibility at the end of the agreement make it an attractive choice. Choose PCP if you prefer lower monthly payments and the flexibility to upgrade, return, or purchase the vehicle at the end. Your choice ultimately depends on your financial priorities, lifestyle, and long-term plans for the vehicle. Both options can be tailored to suit your needs, so ensure you understand the terms before committing.
Check if you could claim for mis-sold car finance below
PCP and HP mis-selling FAQs
Will different makes and models be eligible for different payouts?
The exact amount of compensation will have nothing to do with the make or model of the car, but how the finance deal was arranged and the potential amount that you have overpaid.
You can find more details about this below.
How is the amount calculated per payout?
If you’re eligible for compensation, then the total amount you receive will depend on several factors. These include the total amount of finance you took out, the date it was taken out, the contract length and interest rate. They’ll also look at the value of the commission that was paid by the lender to the car dealer.
The average driver was over-charged by more than £1000 when arranging finance on a PCP and HP finance deal, the .
This is an average figure, and it doesn’t guarantee you’ll get £1,000 back.
How long do I have to apply for a claim?
If you think that you could have been mis-sold PCP or HP you should claim through . The court case is currently progressing with a decision expected at some point this year.
It’s likely that the number of claims could be millions and could take months or even years for lenders to process.
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You can make a claim yourself by going directly to the lender, or through the financial ombudsman service
Check if you could claim for mis-sold car finance below
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