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 £6,500 over 60 months with a representative APR of 19.9%, an annual interest rate of 19.9% (fixed) and a deposit of £0. The amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount repayable of £9,964.37. This is representative of CarFinance 247 Limited customers.
Credit subject to status. Actual finance offered will be dependant on further assessment of your affordability.
For example, here's the breakdown for a hire purchase loan over 5 years:
|Deposit||Remaining loan value to be paid over 60 months||APR rate|
With this rate, the loan would cost you:
|Monthly cost of loan (including 19.9% APR)||Total APR costs due across loan period||Total cost of loan|
What our car finance expert says
Need more help?
Car finance is a credit agreement between you and a lender that enables you to buy a car.
There are a number of different car finance types including:
- A personal loan
- Hire purchase
- Personal contract purchase (PCP)
If you don't have the cash to buy a car outright it's important to think about the right car finance option for you. Each option is different and only with a personal loan will you fully own your new car from the get go.
The easiest way to get started is to fill out our form and request a quote from our partner Carfinance 247.
Like most financial products, you’ll have to be over 18 to get a quote. Some lenders will have their own requirements so it’s best to get in contact with them if you have any questions before applying.
Yes. Once your finance deal has been approved in principle, you're free to choose your car, whether it's brand-new or second-hand.
When looking for a deal, we'd recommend finding something that suits your financial situation best in terms of affordability. For example, taking out a car loan might suit your circumstances as you can spread the cost of repayment over a few years. Or you might find that a PCP deal suits your finances better and choose to go down that route.
Whichever product you choose, make sure to do your research first to find your best deal.
By getting a quote, it’s easy to see if you’re eligible for car finance within minutes. You just need to enter some basic information that allows lenders to carry out a soft credit search to see if they can offer you a good deal. This doesn’t affect your credit rating.
When you get a quote for a car finance deal, for CarFinance 247 to see which of their lenders will make you an offer, a soft credit check is run. A soft credit check or soft search is a type of credit search that is a way of finding out how eligible you are for a loan, without leaving a mark on your credit report.
Part exchanging your car is where your dealer agrees to take your old car as a deposit and reduce the purchase price (or monthly payments) of your new car.
You can still part exchange if you are buying your car online. Some online dealerships offer a part-exchange service where they will give you a valuation for your old car and take it away when your new car is delivered.
Once you’ve paid 50% of the amount payable, legally you have the right to voluntarily terminate (VT) your car finance agreement. Each finance company will have different terms and conditions. But providing you’ve kept up payments and paid a final agreed sum, you can give the car back and end your contract.
The car will have to be in a reasonable condition – if not, there may be some extra charges when you return it.
Representative APR is the figure lenders use to advertise the interest rates on their loans.
The representative APR should be representative of what the lender reasonably expects customers to enter into as a result of the advertising and should meet the 51% test. The 51% test assesses whether the majority of their customers get this APR rate. Only once a credit check has been carried out will you find out the exact APR that will be applied to your loan. This rate may be higher or lower than the representative APR.
Any lender will want to see that you have enough money to repay your loan. This means it's harder to get car finance if you don't have a job. But you may still be eligible if you can prove that you have an alternative source of income (from a rental property or pension for example) and can afford your monthly repayments.
You can only sell a car if you are its legal owner. That means it's fine to sell a car that you have bought with a personal loan, even if you are still repaying it.
But if you have a lease on your car, or you're on a hire purchase or PCP plan, you won't legally be able to sell it because you don't actually own the car yourself.
Generally though, you will need a good credit score to be eligible for car finance from mainstream lenders. If you have a bad credit score you may have to use a lender that specialises in lending to people with poor credit histories and pay a higher rate of interest.
A reputable dealer is a dealer who you can trust – they have a good customer base, and will be professional in manner. You get peace of mind when looking for car finance deals through CarFinance247 as they only work with reputable dealers.
Confused.com’s car finance journey is provided by CarFinance 247. Car Finance 247 is a trading name of CarFinance247 Limited. Registered office: Universal Square, Devonshire Street North, Manchester, M12 6JH. Registered in England. (Registration Number 06035525). CarFinance247 Limited is authorised and regulated by the Financial Conduct Authority. Car Finance 247 Limited is a credit broker, not a lender and looks to find the best deal from their panel of lenders. Car Finance 247 Limited earn a commission for providing their services, but this does not influence the interest rate you’re offered in any way.