The Financial Conduct Authority (FCA), the UK’s financial services regulator, has been investigating dealer-conducted agreements (DCAs) in motor finance products.
Personal Contract Purchase (PCP) and
Hire Purchase (HP) are two of the most common forms of car financing that have been scrutinised as part of this investigation. Both PCP and HP agreements are covered by the FCA’s review, which aims to address concerns about unfair practices that may have affected millions of motorists.
What is PCP (Personal Contract Purchase)?
PCP is a popular form of motor finance agreement offered by dealerships across the UK. It typically involves an initial deposit payment, followed by fixed monthly payments over a specified term, usually between 24 to 48 months. At the end of this period, there are two main options: either returning the vehicle and ending the agreement or making a final "balloon" payment to own it outright.
The balloon payment is often calculated based on a Guaranteed Minimum Future Value (GMFV), which represents an estimate by the finance provider of what the car will be worth at the end of the contract. This GMFV can significantly influence the total cost and flexibility of the agreement, as it determines whether the final payment is affordable or prohibitive.
What is HP (Hire Purchase)?
Hire Purchase is another common form of motor finance that allows borrowers to purchase a vehicle with a deposit and fixed monthly payments. Unlike PCP, HP gives full ownership of the car once all instalments have been made. There are no restrictions on mileage or wear and tear conditions under HP agreements, making it an attractive option for those who want outright ownership from day one.
Typically, HP terms range between 12 to 60 months, offering a straightforward payment structure with clear end goals. At the conclusion of the agreement, customers can simply continue paying their instalments until they own the car, without any additional costs or complications associated with a final balloon payment like in PCP contracts.
Key Differences Between PCP and HP
Both PCP and HP are forms of finance that help individuals buy vehicles when upfront cash is not available. However, they differ significantly in terms of ownership rights, monthly payments, end-of-term options, flexibility, and total cost.
- Ownership: Under a Hire Purchase agreement, the borrower becomes the legal owner once all instalments have been paid. Conversely, with PCP, ownership remains contingent on making that final balloon payment at the end of the term.
- Monthly Payments: Monthly payments in HP are generally lower than those in PCP due to the absence of a significant residual value component. PCP’s higher monthly payments reflect the need to cover both depreciation and interest costs over a shorter period.
- End-of-Term Options: In an HP agreement, there is no final balloon payment; customers can simply keep making regular instalments until they own the vehicle outright. With PCP, options include returning the car or paying off the GMFV to take ownership.
- Flexibility: While both agreements offer some level of flexibility, PCP provides more options for future transactions like upgrading to a new model or buying out the contract early if possible.
- Total Cost: HP generally results in lower total costs due to its simpler structure and absence of balloon payments. PCP can be costlier overall because of the high final payment required to secure ownership.
Which Finance Types are Covered by the FCA Investigation?
The FCA’s motor finance investigation primarily focuses on Personal Contract Purchase (PCP) and Hire Purchase (HP). These two agreements were scrutinised due to allegations that dealers may have improperly raised interest rates, thereby increasing monthly payments and total costs for customers. Personal contract hire (PCH/leasing), which involves renting a vehicle rather than purchasing it outright, is generally not covered by this investigation as its structure does not include the same risks of inflated GMFVs or final payment structures.
How DCAs Affected PCP Agreements
The FCA’s investigation found that in some cases, dealers had discretion to set interest rates higher than what was originally agreed upon during the initial application process. This practice, known as Dealer Conducted Agreements (DCAs), could result in significantly higher monthly payments and a total cost of finance that exceeded what customers initially anticipated. By adjusting these terms, dealers could increase their profit margins at the expense of consumers who were unaware of or misled about the true costs involved.
How DCAs Affected HP Agreements
Similarly, for Hire Purchase agreements, dealers also had the authority to manipulate interest rates through DCAs, leading to higher monthly payments and overall cost increases. This practice could mean that customers paid more than they should have due to inflated finance charges imposed by dealers without proper disclosure or consent from borrowers.
How Many PCP and HP Agreements are Affected?
The FCA estimates that 12.1 million eligible agreements (FCA, March 2026) potentially affected by unfair practices related to DCAs during the period from 6 April 2007 to 1 November 2024. The total value of these agreements is estimated at £7.5 billion (FCA, 2024). These figures underscore the widespread impact of such practices and highlight the need for robust regulatory measures to protect consumers.
How to Complain About Your PCP or HP Agreement for Free
If you believe your Personal Contract Purchase (PCP) or Hire Purchase (HP) agreement was affected by unfair dealer practices, you have the right to
complain directly to your lender at no cost. This process allows you to seek clarification and resolution without involving any claims management companies. By approaching your lender directly, you can explore options such as refunds for overcharged interest rates or adjustments in monthly payment terms.
You do not need a
claims management company to handle your complaint; most financial institutions have dedicated teams trained to address consumer concerns efficiently and fairly. It is advisable to gather all relevant documentation related to your agreement before initiating contact with your lender, including any correspondence regarding initial application details and subsequent changes made by dealers.
Sources and References
- Financial Conduct Authority (FCA). (2024). FCA investigation into motor finance agreements.
- ONS Census 2021. UK population statistics.
Key FCA Figures
The FCA confirmed on 30 March 2026: 12.1 million eligible agreements, £829 average compensation per agreement, £7.5 billion total redress at 75% consumer uptake, and £9.1 billion total cost to firms. The scheme covers agreements from 6 April 2007 to 1 November 2024. Two deadlines apply: 30 June 2026 for post-2014 agreements and 31 August 2026 for pre-2014. Final complaint deadline: 31 August 2027.
You can complain to your lender directly for free. You do not need a claims management company.
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MLJ.org.uk (mlj.org.uk) is a free, independent information service. We are not a claims management company, solicitor, law firm, or financial adviser. We do not handle complaints, process claims, charge fees, or accept any percentage of compensation. This information does not constitute legal or financial advice. You can complain to your lender directly for free. You do not need a claims management company. If your lender rejects your complaint, you can escalate to the Financial Ombudsman Service at no cost. For personalised legal or financial advice, consult a qualified professional.