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Car Finance Explained

Hire purchase, PCP or a personal loan – and where the compensation scheme stands.

Most new cars, and many used ones, are bought on finance arranged at the dealership. The monthly figure is easy to compare, but the agreements behind it work very differently, especially when it comes to who owns the car and what happens at the end.

Quick Loans mascot holding car keys

Three Ways To Pay For A Car

HP

Hire purchase

  • Usually a deposit, then fixed monthly payments
  • The car is yours once the last payment is made
  • Until then the finance company owns it

Suits: people who want to own the car outright and keep it.

PCP

Personal contract purchase

  • Lower monthly payments than HP on the same car
  • A large optional final payment, often called the balloon
  • Mileage limits, and charges for damage beyond fair wear

Suits: people who like to change their car every few years.

Loan

Personal loan

  • You buy the car outright with the money
  • It's yours from day one, and you can sell it whenever you like
  • The loan isn't secured on the car

Suits: cheaper cars, private sales, or anyone who wants no strings attached.

At The End Of A PCP

When the agreement finishes you normally have three choices: pay the balloon and keep the car, hand it back and walk away, or use any value above the balloon as a deposit on your next car. Handing it back is only straightforward if you are within the mileage limit and the car is in good condition.

Your Rights If Things Go Wrong

With HP and PCP, the law gives you two important protections:

  • Handing the car back early. Once you have paid half of the total amount payable, you can usually end the agreement and return the car, known as voluntary termination.
  • Protection from repossession. After you have paid a third of the total amount payable, the finance company generally needs a court order before it can take the car back.

If you are struggling with car finance payments, speak to the finance company early, and get free help from MoneyHelper or StepChange.

Last checked: 19 October 2026

The Car Finance Compensation Scheme

Courts have found that many car finance customers were not told important details about the commission their dealer earned. In response, the FCA has set up a compensation scheme for agreements taken out between 6 April 2007 and 1 November 2024 where commission was paid. Around 12.1 million agreements are eligible.

You may be owed money if you weren't told about at least one of these:

  • a commission arrangement that let the dealer raise your interest rate to earn more
  • a particularly high commission
  • a tie giving one lender exclusive or first-refusal rights over the dealer's customers

Where things stand: three lenders and a consumer group have challenged the scheme, and parts of it were suspended in July 2026. The case is due to be heard by the Upper Tribunal from 16 to 26 February 2027, with a judgment expected in the months after. Until then, lenders don't have to calculate or pay compensation under the scheme.

What you can do now: if you're concerned about a past agreement, you can complain directly to your lender, free of charge. You don't need a claims company or law firm, which may take up to 36% of any compensation. The FCA's car finance claims page explains how to complain and has contact details for lenders.

Car Finance Questions

Does Quick Loans arrange car finance?

No. We don't arrange HP or PCP. Some people do use a personal loan to buy a cheaper car outright, and loans through our loans pages run from £100 to £3,500.

Is PCP cheaper than HP?

The monthly payments usually are, because a large part of the cost is left in the balloon payment. If you plan to keep the car, add the balloon on and compare the total amount payable instead.

Can I sell a car that is still on finance?

Not until the finance is settled, because the finance company owns the car until then. Ask it for a settlement figure, and the sale can usually be arranged so the finance is cleared first.

How do I know if I'm owed car finance compensation?

If you had car finance between April 2007 and November 2024, you can complain to the lender, which will check your agreement. If you have already complained and haven't heard back, that doesn't necessarily mean you are owed compensation – some people won't be told until the legal challenge is over. The FCA's guidance has the latest position.