Hire Purchase

Hire Purchase, commonly seen as HP is one of the most popular forms of car finance in the UK as it consists of elements from both a lease and a loan. There's a reason Hire Purchase is so popular, find out why with our breakdown of what Hire Purchase is.

How does HP work?

Once you've found the vehicle you want to purchase, you'd typically discuss with the dealer how much of a deposit you'd pay. The remaining balance would then be paid off over an agreed period of time regularly by monthly instalments, normally at a fixed rate.

While you're making repayments, you are actually, in effect simply "hiring" the use of the car until the final payment is made. Once the final instalment has been paid, the vehicle then belongs to you. Once you reach this point, there may be a small fee to pay, either an admin fee or a small option-to-purchase fee however these aren't hidden charges and will be made clear to you at the beginning of the agreement.

Due to you not owning the vehicle outright until your final payment is made (as it belongs to the finance company), unless you have your lenders agreement, you can't sell the vehicle privately while still making finance payments on it. However, you can part exchange the car at any time or settle the agreement early, but you'll have to get a settlement figure and ensure that the figure is paid off in full.

How does HP differ to other car loans?

Hire Purchase is unlike some other forms of car finance/loan, such as a personal contract purchase (PCP). The main difference being the residual value of the vehicle isn't taken into consideration when calculating your repayments. The monthly payments are calculated on the amount you borrow and that, plus interest and any fees are repaid, in full, over an agreed period.

Who is Hire Purchase suitable for?

To find out whether hire purchase is suitable for you depends on your individual financial circumstances. Hire purchase can however be obtained easier compared to other financing options as with hire purchase, the monthly repayments are secured against the vehicle making it a safer lending option for the lenders.

With hire purchase, the lender has a form of security in the car which usually means:

• HP rates can be more attractive than some other forms of lending
• It may be suitable for individuals who don't have all the cash needed to purchase the vehicle in one payment
• May also be suitable for individuals who have had trouble getting approved for finance/loans previously

Hire purchase also allows you to see just how much you'll be paying monthly, allowing you to carefully budget your expenditure. This makes the payments amount perfectly clear and gives you the ability to carefully plan your finances.