McKinnon's lawyer, David Pannick QC, told the Lords hearing yesterday that prosecutors had said that he faced eight-to-ten years in jail if he contested the charges, but a sentence of only 37-to-46 months if he co-operated.
He also said that McKinnon was threatened with terrorism charges that carry potential 60-year jail terms.
Lawyers for the Home Office, arguing for extradition, said that no threats were issued by US authorities, and that the extradition should be allowed to go ahead.
The Law Lords can block the extradition if they find that there has been an abuse of process. A ruling is not expected for a further three weeks.
McKinnon hacked into computer networks belonging to US military headquarters The Pentagon, NASA and other government systems in 2001 and 2002. He did so from a dial-up connection at his girlfriend's aunt's house and was caught.
McKinnon told OUT-LAW Radio in 2006 that he was prepared to face trial in the UK and that he has never contested that he broke into the computer networks. He said that he objects to extradition to the US since he carried out his actions in the UK.
McKinnon claims to have been told when he was caught UK that he faced community service, but when US prosecutors got involved they told him he could go to jail for 70 years.
He claims he was offered the chance to co-operate in the investigation, which would mean he could not only receive a shorter sentence but serve the latter half of it in the UK and be eligible for more lenient UK parole terms.
Pannick told five Law Lords that such threats and bargaining was an abuse of the extradition process.
McKinnon's solicitor Karen Todner told The Register that if the Lords refused to overturn the High Court's extradition order she and McKinnon would take the case to the European Court of Human Rights.
The Lords hearing is restricted just to the behaviour of the US authorities and what effect that has on McKinnon's rights.