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Hire purchase (HP) is a type of car financing agreement where the loan is secured against the car.
With HP you usually pay an upfront deposit and then make fixed monthly payments for an agreed period. The finance company has security in the form of the car, so if you don't keep up with repayments, they can take it away.
However, this security also means the finance company is more likely to consider an application from you if you have a poor credit rating due to missed payments or CCJs in the past.
If you’re looking to compare hire purchase deals, let MoneySuperMarket do the hard work for you. We’ll help you to find and compare deals so you can find the right car finance for you.
If you want to go down the HP route for your new wheels it’s important to understand how the contract will work. Here’s a step-by-step example of how a hire purchase agreement works:
Once you’ve decided HP is the right financing option for you, compare HP deals through MoneySuperMarket, in partnership with Motiv
You’ll have the option of paying a small deposit – in some cases this can be done via part exchange – to secure the car.
You’ll pay back the money you owe in monthly instalments. You’ll be the ‘registered keeper’, but the finance company will own the car until you’ve paid all your instalments.
At the end of the deal there is usually a small ‘option-to-purchase' fee but then you’ll be the legal owner of the vehicle.
Here are some of the downsides and benefits of hire purchase:
You own the car: At the end of the agreement you’ll own the car and you’re free to do with it whatever you like
No mileage limit: Unlike other types of car finance, with hire purchase there usually isn’t an annual mileage limit you must stay within
Option for bad credit: If you have a low credit score, it might be easier for you to be approved for hire purchase than taking out a personal loan
Can’t modify the car: You won’t own the car until the end of your hire purchase contract. Until then you can’t make any changes to the car
Maintenance expenses: With hire purchase, you’ll be the registered keeper of the car, so you have to pay to insure and maintain the car
Repossession risk: If you don’t keep up with your monthly payments, you face the risk of the car being repossessed
The total cost of an HP deal will include the regular monthly payments and any upfront deposit you choose or are required to put down.
The main factors that impact the size of the regular monthly payments are:
The amount you’re borrowing: A higher borrowed amount means higher monthly payments. This can be reduced by buying a less expensive car or by putting a larger deposit down
The term of the deal (specifically how many repayments you will be making): The longer the term, the lower the monthly payments. Typical terms are three to five years
Our car finance calculator can help you find out more.
| 36 Month Example |
|---|---|
Car Price | £10,000 |
Deposit | £2,000 |
Representative APR | 12.9% |
Option to purchase fee | £10 |
Monthly cost | £266.46 |
Total cost of credit | £1,602.48 |
Source: Motiv Finance. Representative 12.9% APR
You’ll see all the HP deals you’re eligible for in one place. This includes the interest rate you’ll be charged and how much your monthly repayments will be.
We’ll ask a few quick questions about your finances to only show you deals that you’re likely to be accepted for.
It’s quick and easy! Once you’ve found the HP deal for you – then you can apply today and be one step closer to leasing your new car.
Make sure you choose an HP deal you can afford to repay each month. The more expensive the car, the larger your repayments and the more interest you’ll pay.
Make sure the deal delivers what you need – from the amount you’re borrowing and the interest rate, to any early repayment charges.
Check your credit report to make sure all the information is correct. Take steps to boost your credit score.
Compare HP deals with our partner Motiv to find a deal that’s right for you. You’ll also be shown your chances of being accepted.
When getting a car through hire purchase, the cost of the vehicle is spread across monthly instalments (including interest). So, once your hire purchase contract finishes, you should have paid off the car and you’ll be the owner. As long as you have paid off the entire balance of the car, you’re free to do whatever you want with the car.
There are a range of alternative finance options for buying a car if you decide against hire purchase. These include:
This type of finance works by you paying a deposit and then making a fixed number of payments. When the contract ends, you can make a large final payment to keep the car or return it to the dealer
You put down a deposit and make fixed monthly payments to lease the vehicle, when the lease ends, you hand the car back with no option to buy
You take out a personal loan to cover the cost of the car, which involves choosing how long you’ll need to pay off the loan. You’ll own the car as soon as you’ve paid the seller the money
Hire Purchase has fixed interest rates and set monthly payments, making it a great way to finance buying a car. As the name suggests, you hire the car for an agreed amount of time and then at the end of the term you can purchase it for an affordable fee. Paying a deposit can lower your monthly instalments. HP is low risk for lenders so you might get a deal even if you have bad credit.
MoneySuperMarket has won the Feefo Platinum Trusted Service Award, an independent seal of excellence, which recognises businesses that consistently deliver a world-class customer experience.
You can compare hire purchase deals with our partner Motiv, in a few simple steps:
We’ll ask you a handful of simple questions about you, your finances and the deal you’re looking for
If you’ve already found the car you want, you’ll need to enter those details. Not found your new wheels yet? Don’t worry, you can still compare deals with us
If any of the offers shown to you match your needs, then you’ll be able to continue your application online with your chosen finance company
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.
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.
Whether or not HP or PCP will be better for you will depend entirely on your circumstances and your preferences.
HP might be ideal for you if you want to own your car once the contract ends and don’t want to be restricted by mileage limits.
PCP might be for you if you’re not interested in owning the car and would prefer cheaper monthly payments. Our guide, PCP vs HP, explains more.
Yes, you can get a hire purchase deal on a used car.
As HP finance is secured on the car you buy, the lender is more likely to approve your application if you’ve missed payments or had CCJs in the past. It’s important to remember:
If you have a poor credit history, it is still possible to get a HP deal
A stronger credit score will improve your chances of being accepted for the HP deal you’re after
When you compare hire purchase finance through MoneySuperMarket, we’ll do a ‘soft search’ - so your credit score won’t be affected
