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Hire Purchase finance is one of the most popular ways to buy a new or used car without paying the full amount upfront. Like any financial commitment, though, there are a few things you should know before deciding if it's the right route. We'll cover everything from costs and ownership to your rights and what happens if your plans change.
Hire Purchase (HP) is a traditional type of car finance that lets you spread the cost over an agreed period. You'll usually pay a deposit, then make monthly repayments that include interest until the agreement ends. The finance company owns the car throughout that time and you only become the owner once you've made every payment and settled any option-to-purchase fee.
These estimates are subject to credit checks and may change when you apply for finance. this is for example purposes only
Maximum borrowable amount
Rates from 9.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status. Representative Hire purchase (HP) example: borrowing £7,000 over 5 years with a representative APR of 21.9%, the annual interest rate of 21.9% (Fixed) and a deposit of £0, the amount payable would be £185.33 per month, with a total cost of credit of £4,119.81 and a total amount payable of £11,119.81. We look to find the best rate from our panel of lenders and will offer you the best deal that you're eligible for. We receive a fixed fee commission per finance agreement, or we receive a commission based on a percentage of the total amount of finance taken. This will not affect the interest rate offered or the total amount repayable. Our service is free.
HP starts with choosing your car, agreeing the loan terms and, in most cases, paying an initial deposit. From there, the lender covers the remaining balance. You repay it through fixed monthly instalments, covering the amount borrowed, the interest and any fees built into the agreement.
Most HP deals run between one and five years. Because the lender owns the car for the length of the agreement, you're the one responsible for the everyday costs: insurance, servicing, repairs and road tax.
Say a car costs £18,000 and you put down a £2,000 deposit — that leaves £16,000 to finance. Spread over four years, that works out as fixed monthly payments covering the finance, the interest and any agreed fees.
Once you've made the final payment, the car is yours — plus any option-to-purchase fee, if one applies.
HP isn't the only way to finance a car, and it works differently from the alternatives.
PCP and HP both spread the cost of a car with fixed payments, but they work towards different goals. With HP, every payment moves you closer to owning the car. PCP keeps monthly payments lower instead, giving you the choice to return the car, trade it in, or make a final balloon payment if you want to keep it.
Leasing suits people who want to use a car rather than own it: you pay to drive it for an agreed period, then hand it back when the contract ends. Leasing agreements also tend to include annual mileage limits, and going over them can mean excess mileage charges.
A personal loan works differently, because the lender gives you the money to buy the car outright. That means you own the car from day one, and you can sell, modify or part-exchange it whenever you like. With HP, the finance company secures the loan against the car instead, and remains the legal owner until you've made the last payment.
HP suits people who expect to keep their car once the agreement ends. You make agreed monthly repayments throughout, which tends to make budgeting more predictable, and HP doesn't normally need a large final payment. Ownership passes to you once you've made every repayment and any option-to-purchase fee.
But suitability comes down to your budget and circumstances. Check you can afford the deposit, the interest and the monthly repayments before you commit. Miss a repayment, and the lender may take action, which could mean losing the car.
If you'd rather change cars regularly or keep your monthly payments as low as possible, another type of finance is likely to suit you better.
The lowest monthly HP payment isn't always the cheapest deal. When you compare HP finance, look at:
It's also worth checking whether early settlement involves extra charges, and what the lender's vehicle criteria are, since some only finance cars within a certain age, mileage or value range.
A regulated HP agreement gives you several legal rights that continue throughout the finance term.
You normally have 14 days to withdraw from the deal after signing. If you later decide you no longer want the car, voluntary termination under the Consumer Credit Act may also be available to you. The law protects you too if the vehicle isn't up to standard.
One protection many buyers don't know about kicks in once you've paid one-third of the total amount payable. From that point, the car becomes protected goods, so the lender can only repossess it with a court order, unless you give your consent.
HP car finance with bad credit is possible, though the interest rate and the deals available to you are likely to differ from someone with excellent credit.
Lenders look at more than your credit score. They'll assess your income, regular spending, existing credit commitments and whether the repayments fit comfortably within your budget. A recent missed payment won't always lead to rejection, but repeated defaults, CCJs or insolvency are likely to reduce your options.
No deposit HP is available from many lenders, so you don't have to put any money down before collecting the car.
That doesn't make the finance cheaper, though. Financing the full purchase price means borrowing more, which raises both your monthly payments and the total interest you pay over the agreement. If you can afford a deposit, even a small one can bring the overall cost of borrowing down.
These criteria are a good starting point, but the lender will still assess other personal details before making a decision. Getting pre-approved through Carplus will help you explore used car finance across a range of cars, compare the pros and cons of HP against other finance options, and see where you stand before submitting a full application.
| To apply for car finance you need to | Requirements | Car must meet the following criteria: |
|---|---|---|
| Provide your full name, date of birth, and nationality | Be aged 18-75 years old | Cost between £4,000 and £40,000 |
| Share your recent address history | Pay an initial deposit if the lender requires one | Have no more than 120,000 miles on the clock |
| Confirm your employment status | Receive a monthly income of at least £1,000 | Be no older than 14 years at the end of the finance agreement |
| Show your income and regular monthly outgoings |
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Real experiences from people we've helped find the right car finance.
No, not universally. HP suits you if you want to own the car and keep it long-term, while PCP suits you better if you want lower monthly payments and like changing cars every few years. Just remember, keeping the car under PCP means making the final balloon payment.
Yes, there is, but it doesn't happen after a single missed payment. If you fall behind, the lender will contact you first to discuss clearing the arrears or finding a way forward. Your agreement's terms set out when repossession can happen, so if missed payments continue, you could lose the car.
Yes, it is, though how you do it depends on where you are in the agreement. Most agreements let you cancel within 14 days of signing, and you may also be able to end it early through voluntary termination if you meet the legal requirements.
Yes, it can, but it doesn't automatically mean lenders will turn you down. They'll look at your credit history, income and whether the repayments are affordable, and some still lend even if your credit isn't perfect.
Yes, usually. You repay what you borrowed plus interest and any fees, so the total cost ends up higher than the car's cash price.
Yes, you can, in many cases. Ask your lender for a settlement figure, and depending on your agreement, you may save some future interest by paying it off sooner.
No, not necessarily. Both HP and a personal loan involve credit and affordability checks. The key difference is that HP ties the loan to the car itself, so the finance company owns it until you finish paying. Lenders often see this as less risky than an unsecured loan, though they weigh every application individually.
Yes, it is. HP charges a small option-to-purchase fee before ownership transfers to you, while CS transfers ownership automatically after your last payment.
Not, you can’ sell a car on HP. HP keeps the finance company as legal owner until you pay off the agreement in full, even though you use the car every day. If you want to sell before then, you'll need to settle the outstanding finance first.
Contact the dealer and your finance company as soon as you can. HP holds the provider responsible for meeting the standards set out in the Consumer Rights Act: good condition, fit for its intended use, and matching the description.
Yes, but usually only with your lender's approval. HP keeps the finance company as owner during the agreement, so modifications may need sign-off, especially if they affect the vehicle's value.
No, not with every dealer. Most dealerships and credit brokers offer HP, but not every dealer works with every lender, and lender rules can also limit a vehicle's age, mileage or value.
Don't ignore the problem. Contact your lender as soon as possible if you're struggling to keep up with payments. Your lender can talk through your options before you fall behind.
