Most UK car finance falls into four types: PCP (low monthly payments, optional balloon at the end), HP (fixed payments to full ownership), personal loans (unsecured cash to buy outright), and PCH/leasing (you never own the car). All regulated agreements come with a 14-day statutory right to withdraw under the Consumer Credit Act 1974, and since 2021 the FCA has banned the discretionary commission model that let brokers inflate your interest rate — a practice now under a £7.5 billion industry redress scheme running through 2026-2027 for older agreements.
At a glance
| Finance type | Do you own the car? | Best for |
|---|---|---|
| PCP | Only if you pay the final balloon | Lower monthly cost, changing cars often |
| HP | Yes, once the final payment clears | Predictable route to ownership |
| Personal loan | Yes, immediately | Buying from a private seller, maximum flexibility |
| PCH (leasing) | Never — you hand it back | Fixed monthly motoring cost, no resale hassle |
The main ways to finance a car in the UK
PCP (Personal Contract Purchase) is the most common dealer finance product: you pay a deposit, then monthly instalments covering the car's depreciation, then choose to pay a final balloon payment to own it, hand it back, or part-exchange. HP (Hire Purchase) spreads the full price over the term with no balloon — the car is legally yours once the last payment clears. A personal loan from a bank, building society or credit union hands you the cash to buy the car outright as a cash buyer, so you own it from day one and aren't restricted to a dealer's own finance product. PCH (Personal Contract Hire), or leasing, means you never own the car at all — you pay a fixed monthly rental to use it for an agreed term and mileage, then return it.
How car finance is regulated
Car finance is a regulated consumer credit activity overseen by the Financial Conduct Authority (FCA). Lenders and brokers must be FCA-authorised, run proper affordability checks, and clearly disclose the APR, total amount payable and any commission arrangement. Regulated agreements under £25,000 (which covers the vast majority of car finance) usually come with a 14-day statutory cooling-off period during which you can withdraw without penalty, repaying only the capital borrowed.
The commission scandal and what it means for you now
Until 2021, some brokers used discretionary commission arrangements (DCAs) — they could raise your interest rate in exchange for a bigger commission from the lender, often without properly telling you. Courts found this unlawful, and the FCA has since confirmed an industry-wide redress scheme covering agreements from 6 April 2007 to 1 November 2024. Around 12.1 million agreements are eligible, with an estimated £7.5 billion in compensation, most of it expected to reach consumers during 2026 and the remainder by the end of 2027. If you had car finance in that window, it's worth checking with your lender whether you're due anything — most schemes are proactive and don't require you to make a claim yourself.
How the numbers work in practice
| Term | Meaning |
|---|---|
| APR | Annual Percentage Rate — the true yearly cost of borrowing including interest and fees |
| Representative APR | The rate at least 51% of accepted applicants must receive; others may pay more |
| Balloon / GMFV | The optional final payment on a PCP, set at signing based on predicted future value |
| Total amount payable | Deposit + all instalments + any balloon — the true full cost of the deal |
Choosing the right product for you
- Want the lowest monthly payment and don't mind not owning the car outright: PCP
- Want to own the car for years after finance ends: HP or a personal loan
- Want to buy privately or need maximum flexibility: personal loan
- Want a fixed cost with zero resale hassle and don't want to own anything: PCH/leasing
Always ask for the total amount payable, not just the monthly figure and APR — two deals with the same monthly cost can differ by thousands over the full term depending on deposit, fees and balloon size.
Frequently asked questions
What's the difference between PCP and HP?
Can I cancel car finance after signing?
Is car finance regulated in the UK?
Am I owed money from the motor finance commission scandal?
What is a representative APR?
Sources & further reading
- FCA — Motor Finance Consumer Redress Scheme (PS26/3)
- MoneyHelper — Car finance: HP and PCP agreements
- gov.uk — Consumer Credit Act cancellation rights
Figures, prices and policy details were current at the last-updated date above. Automotive pricing, incentives and regulations change frequently — verify time-sensitive details with the linked primary sources. Read our editorial policy and fact-checking standards.
