Hire purchase

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Rates from 8.9%. Representative 19.9% APR.

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.

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What is HP finance?

Hire purchase (HP) car finance allows you to buy a car without having to pay everything upfront.

You’ll usually need to pay a deposit when you take out an HP car finance agreement. The balance of the car’s value together with the hire purchase interest can then be paid in monthly instalments over a set period of time. This is typically three to five years.

You won’t have to make a big final payment at the end of the HP finance term – once you’ve made the last monthly payment you’ll own the car outright.

Hire purchase is quite similar to another form of car finance called personal contract purchase (PCP). Both HP and PCP both involve a finance agreement to purchase the car, however the main difference is with PCP you have more options at the end of the agreement with what happens to the car. Find out more about PCP finance.

How does a hire purchase agreement work?

When buying a car on HP car finance, you can either work out a hire purchase agreement with a dealer, or search for a car finance quote and see if a HP deal is offered by one of CarFinance 247's lenders.

You’ll usually need to pay an initial deposit, which is typically around 10% of the full value of the car. After this, you can drive the car while you pay off the remainder of its value each month, plus interest.

What's the difference between hire purchase finance and a personal loan?

The main difference is that if you’re taking out a personal loan, the car is yours as soon as you buy it. You'd just need to repay what you’ve borrowed, plus any interest.

But a personal loan is not secured against the value of the car, so the car would be yours from day one.

With hire purchase car finance, the car isn’t actually yours until you’ve made the final payment.

How much does a HP cost?

With HP car finance, the main cost is made up of the initial deposit and the monthly payments you'll make over the term of the contract.

Your monthly payments depend on:

The car's value. The more expensive the car, the higher your monthly payments.
How much deposit you pay, as paying more upfront will reduce your monthly instalments.
Length of the hire purchase agreement. The payments for a five-year HP contract term should be lower than with a three-year term.
HP interest rate. A higher interest rate will increase your monthly payments.

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Representative APR 19.9%

What are the alternatives to hire purchase?

Here are some alternatives to hire purchase:

Personal contract purchase (PCP) involves making a large payment at the end of the finance contract if you want to keep the car. The monthly payments tend to be lower as you’re only paying off the depreciation.

Depreciation is the difference between what the car's worth at the start of the agreement and what the dealer says it'll be worth at the end. You’ll also need to pay a deposit at the beginning.

Personal contract hire (PCH) is an agreement to lease the car. You’ll pay a small deposit followed by monthly payments, which also tend to be lower than with HP. At the end of the PCH contract, you’ll give back the car. As long as you don’t exceed a given mileage level, maintenance and servicing are usually included.

A car loan means you borrow a sum of money to buy a car. You’ll be the owner of the car as soon as you hand over the money to the seller. If you choose a longer loan term, you’ll pay more in interest.

Can my car be repossessed?

If you break the terms of the HP agreement, for example, by missing payments, then your car may be repossessed.

Repossessing your car should be the last resort in a breakdown of payments, and there are steps you should take before you get into this kind of situation. You should always talk to your lender if you get into financial difficulty, Citizens Advice state:

''Make sure you tell your lender if you’re in a difficult situation - for example, if you’ve lost your job. They might agree not to repossess something if it would make your situation worse. Talk to an adviser if your lender tries to repossess something without trying to get the money back another way. For example, if they’ve refused to help you make a repayment plan.''

You can find out more and get more guidance on the Citizens Advice website.

Can I cancel a HP agreement before the final payment?

It's worth knowing that many HP car finance deals allow you to terminate the agreement before the final payment is made. In fact, this is your legal right as part of the Consumer Credit Act 1974, section 99, and should be noted within your contract.

As a result, there are some fairly standard circumstances under which you can cancel.

For example, many HP agreements say that as long as you’ve repaid 50% of the total amount, which includes any interest, you can end the agreement and give the car back.

How much can I borrow?

Check what your monthly repayments are likely to be

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What are the pros and cons of car Hire Purchase?

Pros

Repayment terms are often flexible
Relatively low deposit payments are required
The interest rate is fixed
You might be able to return the car part-way through the repayment period
There's no final lump sum to pay at the end of the agreement

Cons

The car isn't yours until you’ve made the final payment
If you can’t meet payments, the finance company could take your car away
The size of your deposit and length of your repayment term will affect your monthly payments
You may be limited to buying your car from a particular manufacturer or dealership
Shorter-term deals can be relatively costly

How do I get the best HP car deal?

There’s no one best HP car deal as every agreement will suit different people depending on their financial circumstances.

For example, a HP car deal taken out over a shorter amount of time will usually require higher monthly payments than one over a longer period.

Paying a higher initial deposit also tends to lower your monthly payments on HP car finance. Ultimately, it’ll depend on how much you can afford to pay back each month.

Saying this, some hire purchase finance deals are more competitive than others, so it’s worth comparing HP car finance agreements.

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Will I be charged a fee for organising car finance?

You won’t be charged a fee when you search for a car finance deal through CarFinance 247. They do earn a commission based on the deal but it doesn't affect the interest rate you're offered in any way.

Can I change my car on HP?

There are two ways of changing your car when you’re on HP:

End the HP agreement early by paying the owed balance with one lump sum payment. You’ll have to ask your HP car finance provider for an early settlement figure to do this. You’re then free to sell the car.

Trade in the car at a dealership. The dealer would pay the early settlement figure for you to end your current HP car finance agreement. If the trade-in value offered by the dealer is lower than the early settlement figure, you’ll need to pay the difference.

Can I pay off my hire purchase deal early?

Yes, you can typically pay off your hire purchase deal early – you’ll need to ask your HP car finance provider for an early settlement figure. Paying off the balance early means you’ll save money on interest, but there might be an early repayment charge. You should check the terms and conditions of your HP agreement.

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