What Is Hire Purchase Car Finance?


If you want to buy a car but can’t afford to pay for it outright, Hire Purchase (HP) lets you split the cost and own the vehicle at the end. You’ll pay a deposit of around 10% of the car’s value, then fixed monthly payments for 1-5 years, plus a circa £100 ownership fee to own the car at the end.


Want to know more about HP agreements and whether it’s the right option for you? Discover everything you need to know in this handy guide before making a decision.


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How does HP car finance work?

Positive businesswoman purchasing car

HP deals are designed for people who are set on owning their car. Unlike PCP finance, HP payments go towards the value of the entire car, rather than its depreciation over the course of your agreement.

For this reason the monthly payments tend to be higher. However, the benefit of this is you won’t have to pay a large balloon payment at the end to own the car.

Most HP deals are available on new and used cars from most dealerships. At first you’ll need to pay a deposit of around 10%, though you can put more down if you want to make the monthly payments cheaper. The remainder of your contract will be made up of fixed monthly payments that will include interest from borrowing (usually this is between 4-8%).

You won’t have to specify a mileage limit when you take out a HP agreement. Neither will you have to keep the car in a certain condition – unless you plan to give it back early, in which case you’ll need to ensure the car meets the fair wear and tear standards of the British Vehicle Rental and Leasing Association).

Once you come to the end of your HP deal, you have the option to purchase the car for around £100. If you don’t want to, however, you can simply hand it back to the dealership with nothing more to pay.


Is HP a good way to buy a car?


There are advantages and disadvantages to consider before choosing to finance a car through a HP deal. Here are the main things to consider.


How to get the best HP deal


1. Check the APR rates


The APR (Annual Percentage Rate) is the amount of interest you pay on a car loan. This tends to be between 4-8%, but can be as high as 20% on used cars. If you have bad credit finance providers can also charge a higher rate of interest.

You may see some deals advertised as having 0% or low interest too. Don’t assume that this means they’re the best deal though. Most of the time finance providers will make up for this by charging a higher deposit or option-to-purchase fee.


2. Shop around different dealers/brokers

Woman writing car insurance document, bank loan application or lease contract. Car dealer working with computer in dealership. Buying or selling new or used vehicle online.

Sometimes getting the best deal will boil down to where you get the vehicle from. Essentially you have two choices here – you can either find a HP deal from a dealer or an online broker.

Having a comparison of HP prices for both dealer and broker HP deals is a sure way of getting the best deal. Start by looking online and gather a few prices on the car you want so that you can go into dealerships prepared.

You’ll want to get figures for the APR you’ll pay, the total amount payable, total cost of credit and any additional fees.


3. Consider the overall cost


It’s easy to get drawn into a HP deal by the headline monthly price advertised. However, a low monthly price doesn’t necessarily mean that you’re getting the best deal.

What you want to consider is the overall cost of finance across multiple deals on the same vehicle. This will take into account the cost of the interest and any admin fees a provider might charge for processing the deal. By comparing deals side-by-side online you’ll be able to see which agreement costs you less over the entirety of the contract, not just each month.


4. Research and haggle

Car salesperson talking with customer in showroom

Not only can you haggle on the price of your vehicle, but also the APR rate, deposit and additional fees on any deal you’re interested in.

You won’t want to walk into a dealership and start haggling if you haven’t done any research though. It’s good practice to look at some existing HP deals online to get an idea of what you should be paying. You’ll then be in a position to negotiate the price and could save hundreds or even thousands off your car finance.


5. Take your time


Probably the most important bit of advice when searching for the best PCP deal is not to rush.

We recommend starting to search for a new car several months before the end of your current finance agreement (if you’re already on car finance). This way you’ll have plenty of time to search for a suitable model and find the best deal.


What happens at the end of a HP deal?


It’s a very simple process when you reach the end of your HP agreement. There are two options you can take:

  1. Hand the car back. You’ll need to make sure the car is in good condition if you’re giving it back.
  2. Pay the option to purchase fee and own the car. It will cost around £100=£200 to own the car and you won’t need to worry about the car’s condition as you won’t be handing it back.

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