Understanding the Three Main Types of Car Finance
Before we explain why all three types qualify for compensation, let's clarify what each one is and how they differ.
Personal Contract Purchase (PCP)
PCP is the most popular form of car finance in the UK, accounting for approximately 80% of new car sales. Under a PCP agreement:
- You pay a deposit, followed by monthly instalments over a fixed term (typically 3–4 years)
- Monthly payments are lower than HP because you are only financing the car's depreciation, not the full value
- At the end of the term, you have three options: pay the balloon payment (Guaranteed Minimum Future Value) to own the car, return the car, or part-exchange for a new car on a new PCP deal
- You do not own the car until the balloon payment is made
Hire Purchase (HP)
HP is the more traditional form of car finance and is particularly common for used cars. Under an HP agreement:
- You pay a deposit, followed by monthly instalments over a fixed term (typically 3–5 years)
- Monthly payments are higher than PCP because you are paying off the full purchase price
- There is no balloon payment — once all instalments are paid, you own the car
- Ownership transfers automatically at the end of the term (or upon a final "option to purchase" fee, usually £1)
Conditional Sale
A Conditional Sale agreement is similar to HP but with one key difference: ownership is agreed to transfer automatically upon completion — there is no "option to purchase". In practice, the consumer experience is almost identical to HP. Conditional Sale agreements are covered by the FCA scheme in the same way as HP.
How Discretionary Commission Affected All Types
The discretionary commission arrangement (DCA) worked the same way regardless of whether the agreement was PCP, HP, or Conditional Sale:
- The lender set a minimum interest rate (the "base rate")
- The dealer was given discretion to increase the interest rate above this minimum
- The higher the interest rate the dealer set, the more commission they earned
- The consumer was never told about this arrangement
This created a direct conflict of interest: the dealer was incentivised to charge you the highest interest rate possible, because their commission depended on it. The Supreme Court ruled in October 2024 that this was unlawful because the dealer owed a duty of loyalty to the consumer and failed to disclose the financial incentive.
PCP vs HP: Comparison for Claims
| Factor | PCP | HP | Conditional Sale |
|---|---|---|---|
| Eligible for FCA scheme? | ✓ Yes | ✓ Yes | ✓ Yes |
| DCA was used? | ✓ Widespread | ✓ Widespread | ✓ Widespread |
| Typical finance amount | £15,000–£35,000 | £5,000–£20,000 | £5,000–£20,000 |
| Typical interest rate (with DCA) | 6–12% APR | 8–18% APR | 8–18% APR |
| Commission paid to dealer | 1–4% of finance amount | 1–5% of finance amount | 1–5% of finance amount |
| Estimated compensation | £500–£2,000+ | £300–£1,500+ | £300–£1,500+ |
| Court claim potential | £3,000–£10,000+ | £2,000–£8,000+ | £2,000–£8,000+ |
| Eligible period | 6 Apr 2007 – 28 Jan 2021 | 6 Apr 2007 – 28 Jan 2021 | 6 Apr 2007 – 28 Jan 2021 |
Why HP Claims May Be Underrepresented
Media coverage of the motor finance scandal has predominantly focused on PCP — partly because PCP is the more common type and partly because PCP agreements tend to involve larger sums. But this has created a significant problem: millions of HP customers do not realise they are also eligible.
Here is why HP claims deserve equal attention:
1. HP Interest Rates Were Often Higher
Because HP was more commonly used for used cars and customers with lower credit scores, interest rates were frequently higher. An HP agreement at 15% APR when the base rate was 8% means the dealer's commission was particularly large — and so is your potential compensation.
2. HP Was Common for Used Cars
Used car dealers were among the most aggressive users of DCAs. While manufacturer-backed lenders (like Ford Credit or Volkswagen Financial Services) tended to use more moderate commission structures, independent lenders used by used car dealers — such as Close Brothers and MotoNovo — often allowed wider discretionary margins.
3. Longer Agreement Terms
HP agreements sometimes ran for 4–5 years (compared to 3–4 for PCP), meaning the consumer paid the inflated interest rate for longer. More months of overpayment = higher compensation.
4. Lower Financial Literacy
HP customers were statistically less likely to shop around for finance or understand the interest rate they were paying. The FCA found that consumers with lower financial literacy were disproportionately affected by DCAs.
What About Personal Loans for Cars?
A common question is whether a personal loan used to buy a car is also eligible. The answer is generally no, for the following reason:
The FCA's investigation covers dealer-arranged finance where the dealer acted as a credit broker. If you applied for a personal loan directly from a bank or building society (not through the dealer), there was no broker-dealer relationship and therefore no DCA.
However, there are edge cases:
- If the dealer helped you arrange a personal loan through a specific bank, the dealer may have received a commission — potentially making it eligible
- Some agreements marketed as "personal loans" were actually HP or Conditional Sale agreements — check your paperwork or credit file
- Car finance from a captive lender (e.g. Ford Credit) arranged by the dealer is eligible regardless of how it was labelled
Which Lenders Used DCAs for Both PCP and HP?
All of the following lenders used discretionary commission arrangements across both their PCP and HP products:
- Black Horse Finance (Lloyds) — the UK's largest, used DCAs extensively for both PCP and HP
- Santander Consumer Finance — major player in both new and used car finance
- MotoNovo Finance — heavily used in the used car market (HP)
- Close Brothers Motor Finance — specialist in used car HP
- Barclays Partner Finance
- Alphera Financial Services (BMW Group) — PCP and HP for BMW, MINI, Rolls-Royce
- Ford Credit (FCE Bank)
- Volkswagen Financial Services — VW, Audi, SEAT, SKODA
- BMW Financial Services
- Mercedes-Benz Financial Services
- Toyota Financial Services — Toyota and Lexus
- PSA Finance — Peugeot, Citroën, DS, Vauxhall
- Hyundai Capital — Hyundai and Kia
How to Claim: PCP, HP, or Conditional Sale
The claims process is identical regardless of your agreement type:
- Check your eligibility — use our free 60-second checker. You just need your name, approximate dates, and any details you remember about the car or dealer.
- We identify your lender and agreement — through credit file checks and Subject Access Requests, we trace the exact agreement details.
- We submit your complaint — a formal complaint is filed with the lender, citing the DCA and the Supreme Court ruling.
- Assessment under the FCA scheme — your claim is assessed against the redress criteria. Both PCP and HP follow the same process.
- Compensation paid — if successful, the lender pays your compensation directly. Our fee (30% inc. VAT) is deducted only upon success.
I Don't Know Whether My Agreement Was PCP or HP
This is completely normal. Many consumers do not know (or have forgotten) whether they had PCP or HP — especially if the dealer arranged the finance. Here are the clues:
- PCP clue: You had the option to hand the car back at the end without paying more, or pay a "balloon payment" to keep it
- HP clue: You were always going to own the car at the end once all payments were made — no balloon payment
- Monthly payment clue: If your payments seemed lower than expected for the car's value, it was likely PCP
- Still not sure? It does not matter — both are eligible. Register your claim and we will identify the agreement type for you