Hire Purchase (HP)
Hire purchase starts with a deposit to hire the car, usually around 10% of the car's value. After that you make monthly payments to the finance company until you've paid the car off in full.
Once you've made your final payment, you'll own the car.
Hire purchase deals usually lasts for 12 - 60 months and will often require a deposit at the start of the deal. Some deals have no limit on how many miles you can drive.
Car loans are also sometimes known as a personal loan or an unsecured loan. A car loan lets you borrow a one-off lump sum which is paid back in monthly instalments. This allows you to buy a car outright and spread the repayment cost over the course of a few years. With a car loan, you’ll own the car and there’ll be no limits on how many miles you can drive.
Personal contract purchase (PCP)
Personal contract purchase (PCP) is similar to hire purchase. PCP deals usually last for 36 – 60 months. They usually start with a deposit followed by monthly repayments. PCP monthly payments are typically lower than hire purchase or a car loan. This is because you’ll be paying off the depreciation of the car, not its full value.
When your repayments come to an end, you’ll have a couple of options:
- If you’d like to own the car, you’ll have to pay a ‘balloon payment’ which will cover the cost of owning the car outright
- Return the car to the finance company
- Exchange the car for a new car on a fresh deal
|Hire purchase||Personal Contract Purchase||Personal Loan|
|Requires initial deposit|
Requires initial deposit
|Usually requires deposit||Usually requires deposit|
|You own the car outright|
You own the car outright
|Car is yours at the end of the agreement|
Car is yours at the end of the agreement
|You can choose to own the car with a 'balloon payment||You'll own the car at the start of the agreement whilst paying off the loan|
|Fixed monthly payments|
Fixed monthly payments
|Optional balloon (final) payment|
Optional balloon (final) payment
|Excess mileage charges|
Excess mileage charges
|Secure against an asset (eg car)|
Secure against an asset (eg car)
How much does a car loan cost?
It depends on how much you borrow and for how long a period you pay back your loan.
Depending on your budget you may want to make your monthly payments lower. You can do this by paying your loan back over a longer period. But the total loan cost would increase as you’re paying that APR amount over a longer time.
Or equally to pay less APR overall, you could increase your monthly payments to pay off the loan faster.
You may also have to pay additional fees if you wanted to retain ownership of car.
Representative example: Borrowing £8,000 over 48 months with an APR of 24.4%, an annual interest rate of 24.4% (fixed), the amount payable would be £252.19 per month, with a total cost of credit of £4,105.22 and a total amount repayable of £12,105.22.
Credit subject to status. Actual finance offered will be dependant on further assessment of your affordability.
What our car finance expert says
Comparing deals and rates for finance can get confusing and what you see isn’t always what you get. By showing you the exact APR on deals rather than a representative APR, you’ll have a better idea of what you can expect to pay, making your budgeting that little bit easier.
Car finance expert
Need more help?
The easiest way to get started is to fill out our form and get a quote.
Like most financial products, you’ll have to be over 18 to apply. Some lenders will have their own requirements so it’s best to get in contact with them if you have any questions before applying.