What Is Hire Purchase Car Finance?

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Joe Brayne

Car Prchasing Guru

Hire Purchase (HP) car finance is one of the most common forms of car finance. It allows you to buy a vehicle and pay for it over an agreed period, typically on a monthly basis. Once the last payment has been made, you will own the car outright.

It is a fantastic way for people to get the car they’ve always wanted without having to pay for it all at once. Most people need cars to travel for everyday lifestyle needs, such as employment and/or childcare. However, getting a new car can become expensive since it’s a big purchase for many to make. That’s why hire purchase finance is so popular and why many people use it to get their dream car!

HP Finance Is The Most Common Form Of Car Finance.

HP finance, also known as Hire Purchase, is a popular form of car finance. Similarly, there is Personal Contract Hire (PCP finance), you can read about PCP finance here.

Many people still want to own their car at the end of their finance agreement, at that is why HP finance is so popular! It might be a better option for you compared to PCP financing because you get to keep the car at the end of the agreement. Plus, there is no lump sum at the end of the agreement that may cost as much as a ‘balloon payment’. This type of payment occurs at the end of a PCP contract, should you wish to own the car.

HP is available from most major UK lenders and is available for both new and used cars. If you want to find out more information, apply and our advisors will contact you. They will go through all you need to know about HP car financing to help you make an informed decision.

But How Does It Work?

HP finance works with two types of payment you will need to make. Firstly, you will need to make a deposit on the vehicle. This is usually around 10% of the vehicle’s value. Secondly, you make monthly payments on the vehicle throughout your agreement to pay off the rest of the car (with added interest). Hire purchase finance agreements typically last for one to five years. Some finance lenders may require an ‘option to purchase’ fee, but we will go over this further on. Read on to find out!

Use A Deposit For Cheaper Monthly Repayments

If you have put down a deposit on the car, this will be deducted from your total repayments. You’ll still need to make monthly payments, but they will be lower as there is less money being borrowed overall. The amount of the deposit varies by vehicle and finance provider, so it’s worth checking with them before agreeing to an offer on your new car. It’s also worth checking the interest rate that will come with the car you want to purchase. Our passionate brokers can help you understand what this is when you apply!

If you have a car in mind but aren’t sure whether you are able to afford it. Don’t worry, we could help secure you the car you want, or, we could even find you a better car for a better price!

You Get A Car For An Agreement Period, and Then You Can Keep It.

Essentially, Hire Purchase financing provides you with access to a vehicle for a fixed period (the agreement period), with a fixed monthly payment. You could also think of it as an agreement or contract – Car LoansUK is a car brokerage service that helps pair you with a car and a financial lender. We could help match you with a car and a lender that is right for you!

Finance Companies Could Help You Pay For The Car.

In a nutshell, HP financing is a way for you to purchase a vehicle, such as a car, without paying for it outright and make monthly payments until the end of your agreement period. You don’t have to pay anything at the end of your agreement period and you own the car once you have made all the monthly payments. Finance companies could help you to pay for your new car on a Hire Purchase car finance agreement. Making repayments on time will put you in good stead to own the car once your agreement comes to an end. Although, some lenders may ask you to pay an ‘option to purchase’ fee. This is to help transfer legal ownership of the car from the finance company to you. It is usually added to your final payment.

Always check with your finance company to see whether this applies to you!

Can I Settle The Hire Purchase Finance Agreement Early?

It is possible. There is no penalty if you wish to pay off the balance you still owe on your HP finance agreement before the end of the contract due to changes in your financial situation. The lender will calculate your total settlement amount, and once it is paid, you will own the vehicle outright. Make sure you contact your lender to make sure what the particulars of your contract are. This could help you make an informed decision if you wish to settle your agreement early.

Is A HP Finance Agreement Right For Me?

Before considering a HP finance agreement, make sure to ask yourself these questions:

  • Do I want to own the car outright?
  • Do I drive long distances?
  • Do I want to keep the same car for a long time?

If you answered ‘yes’ to any of those questions, HP car finance could be a great option for you! But, if you’re not sure, make sure to contact our advisors and they could go through all the particulars with you to see if it will be a good fit!

Pros Of Hire Purchase Finance

  • Your monthly payments can suit your budget for the car you want.
  • It could help improve your credit score (if you make payments on time).
  • You can avoid any additional fees at the end of your agreement.
  • You can own the car at the end of your contract.
  • The car finance agreement won’t be limited by mileage restrictions.

Cons Of Hire Purchase Finance

  • Hire purchase finance payments are typically more expensive than other financing options.
  • You’re limited when it comes to modifying or selling your car during your agreement.
  • You will need to make all the payments back, and financial troubles could prevent this.

Meet These Criteria Before Applying.

As with any credit product, it’s best to make sure you meet these criteria before applying.

You must:

  • Check your credit history. This gives you an advantage when it comes to deciding what car to get. Lenders will see you as someone who is responsible when it comes to making payments. If you want to improve your credit score, Credit Reference Agencies could help you, so make sure to check out their sites. However, even if you have bad credit, we may be able to help you. Our panel of lenders may take into consideration people for most financial circumstances considered.
  • Be over 18 years old; have been living in the UK for at least 12 months; hold a valid UK bank account; have an active UK driver’s licence. You must have some form of income, either through employment or through benefits (although you will have a better chance of being accepted for car finance if you are employed).


We hope this guide has helped answer any questions you may have had about hire purchase finance. If you have any additional questions about HP finance not covered in this guide, or anything else related to buying a car, apply now! We’re here to help you find the right loan for your needs and give you all the information required to make an informed decision.

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