Hire Purchase (HP) is one of the most straightforward and popular ways to finance a vehicle. It allows you to spread the cost of a car, motorbike, or other vehicles over a fixed period, with the option to own the vehicle outright at the end of the agreement. HP is particularly appealing for those who want to gradually pay off their vehicle without any large final payments or mileage restrictions.
With a Hire Purchase agreement, you essentially rent the vehicle with the option to buy it at the end of the term. Here’s a step-by-step look at how it works:
Initial Deposit: The process begins with an upfront deposit. This deposit reduces the amount of finance you’ll need and can lower your monthly payments.
Monthly Payments: You make fixed monthly payments over an agreed period, typically between 2 to 5 years. These payments cover the cost of the vehicle, plus any interest charges agreed upon at the start of the contract.
Option to Purchase Fee: At the end of the agreement, once all monthly payments have been made, you’ll have the option to pay a small “option to purchase” fee. After this fee is paid, the vehicle officially becomes yours.
One of the main attractions of HP finance is the straightforward path to ownership. Unlike other finance options like Personal Contract Purchase (PCP), where you might need to decide whether to keep the car or not at the end, HP gives you clear ownership once the final payment is made. This certainty can be appealing if you’re planning to keep the car long-term.
HP agreements are designed to be transparent and easy to understand. The costs are straightforward:
There are no hidden charges or unexpected fees, making HP a straightforward way to finance your vehicle.
HP agreements offer some flexibility if your circumstances change, and you want to end the agreement early:
Request a Settlement Figure: You can contact your lender to request a settlement figure. This is the amount needed to pay off the remaining balance on your agreement.
Sell or Trade-In: If you sell or trade in the vehicle, any amount it’s worth over the settlement figure can be used as a deposit on your next vehicle or received as cashback.
Voluntary Termination: If you’ve paid off at least 50% of the total amount payable, including the interest and fees, you may be able to voluntarily terminate the agreement and return the car with no further payments. This can be a useful option if you’re unable to keep up with payments but still want to avoid further financial obligations.
The primary difference is that Hire Purchase leads to ownership of the vehicle at the end of the term with no large final payment required, apart from a small option to purchase fee. In contrast, PCP involves lower monthly payments with a large balloon payment at the end if you want to own the car.
No, unlike PCP, there are no mileage restrictions with Hire Purchase. This makes it ideal for those who plan to drive their vehicle extensively without worrying about excess mileage charges.
Yes, you can end a Hire Purchase agreement early by paying the settlement figure provided by your lender. If the car’s value is greater than the settlement figure, you could use the difference as a deposit on your next vehicle. Alternatively, you may be able to return the car under voluntary termination if you’ve paid off at least 50% of the total amount payable.
Yes, Hire Purchase is often a more accessible option for individuals with bad credit compared to other types of car finance. Since the lender owns the vehicle until the final payment is made, there is less risk involved for them, which can make it easier to secure financing.
The above rates and monthly payments are an example only. The actual rate you will be offered by lenders could be lower or higher depending on your circumstances
Representative example: borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37.
*After completing the application, lenders will perform a "soft search" that will not affect your credit score. Should you get an offer of finance and wish to proceed, the lender will then perform a "hard search" of your credit file. Finance acceptance is not guaranteed, please click the following link for more information: Initial Disclosure Document
