Hire Purchase (HP) Car Finance

Hire Purchase or HP is available to both private buyers and companies who are looking to purchase a car and own it outright. A finance agreement like HP allows you break down the vehicle’s cost into affordable fixed monthly payments. You are eligible to apply for a hire purchase loan if you’re over 18 years old and have a minimum of three years’ address history in the UK.

The reason why you might find it easier to get HP car finance rather than a personal loan is because hire purchase loans are secured against the vehicle. That means that if you were to stop making your repayments, the finance company could take ownership of the car. You can also put down a deposit and reduce the amount you’ll need to pay back. A personal loan does not include a deposit and is not secured against the vehicle and so you may need to have a higher credit score or financial history that demonstrates that you’ll be a reliable borrower who is unlikely to miss any repayments.

With a hire purchase (HP) agreement, you can pay off your loan early if you pay the settlement figure. This is the amount of money it will cost to pay off your loan in full and is usually made up of the remaining loan amount plus interest. Your finance company will be able to let you know how much this will be. The further you are into your agreement, the lower your settlement figure may be. Don’t forget to check the terms of your loan to find out whether you’ll need to pay a fee for settling your finance early.

The Option to Purchase fee is an amount of money that you may need to pay at the end of your hire purchase agreement to cover admin costs and officially become the car’s owner. This is typically a much lower amount than a balloon payment would be with a PCP agreement.

To sell a car on hire purchase, you’ll need to either wait until the end of your loan term and you own the car or request the settlement figure to end the agreement early. This is because HP car finance is secured against the vehicle and the finance company owns it until you’ve made all the repayments. This means that you can’t sell the car or make any major modifications during your agreement.

The cost of your HP agreement will depend on how much you want to borrow, how long you need to pay it back, and your credit score. Typically, HP monthly repayments are cheaper than they would be with a personal loan as the finance is secured against the vehicle. However, you won’t own the car until you’ve finished making all your payments.

Putting down a deposit when buying a car can reduce the amount you need to borrow and increase your chances of securing a loan. In a typical hire purchase agreement, you can put down a deposit of 10% or more of the car’s value. However, if you don’t have any money saved or a vehicle to part-exchange than you may be able to find a no deposit hire purchase deal.

The best way to finance a car depends on your individual circumstances, the car you’d like to buy, and how you plan to use it. If car ownership is important to you then buying outright, choosing a personal loan, or opting for a hire purchase agreement might be the best choice for you. However, if you like to change car regularly and prioritise lower monthly repayments over owning a car then personal contract purchase (PCP) could give you more options at the end of your agreement.

When you buy a car on finance it might affect your credit rating temporarily as you’ll be taking on a relatively large new debt. However, successfully managing your car finance and making all your payments on time could improve your score over time as it proves you’re a reliable borrower.

Lenders will also make a hard search on your credit report as part of the loan application process. Too many hard searches in a short time can negatively impact your credit score. However, this doesn’t have to stop you getting the best deal for your car finance. When you apply with CarFinance 247, we’ll run a soft search to find out if we can find you an approval in principle from one of the lenders on our panel. It’s only if you choose to proceed with the loan offered that a hard search, which may affect your credit score, would take place.

When applying for hire purchase finance with CarFinance 247, you will be asked to provide the following details and documents:

• Personal details including your full name, marital status, date of birth, and address history
• Employment details and history
• Estimated amount you’d like to borrow
• Email address and phone number
• Driving licence
• Proof of address
• Proof of income

If you can’t afford your HP repayments and you have already repaid 50% of the total amount payable, then you have the right to voluntarily terminate your agreement and hand the car back. The total amount payable doesn’t just mean the amount you’ve borrowed, it also includes any fees or interest. If you want to keep your car, you may be able to reduce your monthly payment amount by applying for a refinance loan. When you refinance, you take out a new finance agreement, usually with a new lender, to pay the balance on an existing hire purchase loan. You might be able to swap to a loan with cheaper monthly repayments and a longer repayment period instead.

Yes, you can have a second hire purchase (HP) agreement if you meet the lender’s requirements, such as having a good credit score and being able to afford the monthly payments. Lenders may consider your current financial obligations, including any existing HP agreements.

HP finance can be easy or hard to get depending on your credit score and financial situation. If you have a good credit history and stable income, you’ll likely find it easier to get approved for HP. If your credit score is low, it might be more challenging, but here at CarFinance247 we work with lenders who can help people with lower credit scores get accepted for HP finance. Simply enter your monthly budget and click ‘Get a quote’ and we’ll help you with the rest.

Yes, once you’ve made all the payments in a hire purchase agreement, you own the car outright. Until then, the car technically belongs to the finance company. You may need to pay an Option to Purchase fee before the car officially transfers to your name, but not all lenders or dealerships insist on this – it varies from one to the next. This fee is usually fairly small (much smaller than a balloon payment, for example), and it essentially covers the admin costs of transferring the car into your name.

This depends on your financial situation and preferences. Buying a car outright means you own it immediately and don’t have monthly payments, but it requires a larger upfront cost. HP financing allows you to spread the cost of the car over time, which can be more manageable if you don’t have the funds available to buy the car outright, but you don’t own the car until you make the final payment. While you’re paying off the HP finance, you are simply the ‘registered keeper’ of the car.

At the end of a hire purchase agreement, you make a final payment and take ownership of the car. Sometimes, this final payment is called an "option to purchase" fee, and it covers the cost of the admin it takes to move the car officially into your name. Don’t worry, it’s usually a very small amount.

Again, this depends on your personal circumstances. HP can be risky if you take on a loan amount and monthly payments you can’t really afford. Missing payments could lead to repossession of the car and damage to your credit score. It’s important to budget carefully and make sure you can meet the monthly payments. But hire purchase in itself is not a risky process, it’s a good way of being able to afford a car without having to pay for it all in one go.

Yes, you can end a hire purchase agreement early, but there may be fees involved. You could choose to pay off the agreement early (called "settling the finance") or return the car to the finance company (called “voluntary termination”), depending on the terms of your agreement.

Yes, you will usually receive the V5 logbook or registration document when you take out hire purchase finance. The logbook records a vehicle’s registered keeper as well as its owner, and this ensures that any official notifications or documents (including speeding fines or parking tickets) will come to you, rather than the lender or dealership. You won’t be listed on the V5 as the owner of the car until you’ve made the final payment.

People choose hire purchase because it allows them to spread the cost of a car over time, making it more affordable. HP agreements may also offer flexibility with deposit and payment terms, so you can usually get an agreement that fits best with your budget and financial needs.

The half rule, also known as the "voluntary termination" option, allows you to return the car and end the hire purchase agreement once you’ve paid at least half of the total amount payable under the agreement. This option is useful if you can no longer afford the payments or want to end the agreement early.