Hire Purchase (HP) Explained

Hire purchase is a straight forward agreement where the cost of the car is spread over a period of up to 60 months. The rate of interest is set at the point of purchase and is fixed for the full term of the finance agreement.
Because of this the monthly payments are the same each month.

This allows you to budget for each instalment because you know exactly how much the repayments will be.

Another great feature of a hire purchase agreement is the ability to overpay at any point during the agreement. By paying a lump some back early you can either reduce the length of your agreement or reduce your future monthly payments.

You are free to settle a Hire Purchase agreement early if you decide you no longer wish to continue paying monthly or if you would like to change your car before the end of the agreement.

At the end of the agreement, and once the option to purchase fee has been paid, the vehicle is legally yours.

Image explaining HP View cars on HP

What type of drivers choose HP and PCP?

One type of finance may suit your needs better that another so it might be worth seeking independent financial advice before deciding. You should consider carefully how many miles you drive each year, how often you would like to change your car and if it's important to own your car at end of the agreement. Lets look at some typical HP and PCP drivers.

  • I love driving the latest and greatest cars! For me it's all about getting the best car I can for my monthly budget. I like to keep my car up to date so I change it regularly every four years - owning the car after that is not important to me. I buy my cars on PCP.
  • I budget form my purchases and like to know where I am each month. I don't like the idea of paying a lump sum of money in the future. When I find a car that I like I stick with it so I usually keep the car once I finish my finance agreement. I buy my cars on HP.
  • I drive a lot so my cars really rack up the miles. I need to change it every three years to keep it reliable and before it loses too much value. I also like the idea of knowing what my car will be worth in the future. I buy my cars on PCP.
  • Budgeting is really important for me and I want to pay as little interest as possible. I plan to overpay my finance when I can so own it outright as soon as possible. I buy my cars on HP.

Representative Example for Hire Purchase (HP): Cash price £18,000.00, Annual Interest Rate (fixed) 5.13% p.a., with a representative 9.9% APR, total amount of credit £16,200.00, deposit of £1,800.00, an initial payment of £406.82, followed by 46 monthly payments of £406.82 with a final payment of £406.82, total amount payable is £21,327.36