Hire Purchase

For HP to be an option, the car you are looking to buy will typically need to meet the following criteria:

- It must be for sale at a reputable car dealership

- It must not be too old or have done too many miles

The exact criteria here will depend on the finance company, but as a guide if the car is more than 10 years old or has done more than 100,000 miles HP is less likely to be an option and you may want to look at a personal loan / car loan

The amount you will need to borrow will be the difference between the value of the car you are looking to buy and any up-front deposit you put down. The finance company will then set your monthly instalments to cover the borrowed amount as well as the interest you are charged during the period.

If you want to change your car, any outstanding finance outstanding on your current car will need to be settled first. You have two main options:

1. Settle it yourself: You will need contact your current finance provider and ask for an “early settlement figure”. Once this is done, the car will be yours and you can either trade it in at a car dealership, or sell it privately and use the proceeds money towards your next car

2. Trade it in: Another option is to simply trade it in at a dealership and in this case the dealer will settle the finance for you. Any difference between the “early settlement figure” and the trade-in value offered by the dealer can then be used as a towards your next car. Note that if Ifthe car’s trade-in value is lower than the early settlement figure this may still be an option, but you will likely need to make up the difference yourself in cash (known as negative equity). This is called a “negative equity” situation.

With HP, once you’ve made your last payment, which may include a small option-to-purchase fee, you will become the full legal owner of the vehicle.

Unfortunately, during the term of the agreement you will not own the car and so will not be able to sell it. If you wish to sell the car you will need to settle the finance first.

If you wish to make any modifications to a car that is currently financed with HP then you’ll usually need to obtain get permission from the finance company. This is because although you may be the registered keeper of the car, the finance company will be the owner until the finance is paid off in full.

During the term of an HP agreement the car will be owned by the finance company. This usually means bailiffs cannot seize it, but the law is complicated around this so however the law is complicated on this matter and they may suggest that they can. In this scenario contact Citizen’s Advice for help and in the meantime, you may want to consider moving your vehicle to a different location where bailiffs are unable to access it , for example, a friend or family’s driveway (assuming you have permission) or a locked garage.

You may be able to pay off your hire purchase agreement early, but how this would work will vary depending on your lender. If your lender lets you pay off your HP deal early, you’ll repay the remaining amount borrowed – so you’ll save money on interest, but you may need to pay an early repayment charge.

To pay off your hire purchase deal early, you’ll need to ask for a settlement figure from your lender which will include the outstanding amount you have left to repay, minus any future interest not yet accrued, plus any fees the lender may charge you. Your settlement figure will be valid for 28 days – if you choose not to repay your deal within this time period, you’ll need to request a new settlement figure.