Hire Purchase Car Finance for Used Vehicles
A hire purchase (HP) agreement allows you to outright own your car at the end of the agreement term. While this process isn’t necessarily automatic, as some lenders require a final fee, this fee can be as little as £1.
How does hire purchase work?
A hire purchase agreement is a simple way of buying a car on finance, aimed at those who may want the option of owning their car outright at the end of the term.
The full value of the car is split between the deposit and monthly repayments. While monthly HP payments are typically higher than comparable PCP deals, HP works out as a cheaper way of owning the car. However, you'll have less flexibility than with PCP deals; for example, you won't have the option to upgrade the car towards the end of the term.
The car acts as security on the loan, which lowers the risk to lenders. That's because they can repossess the car and sell it to recover losses if you miss too many payments. On the plus side, the reduced risk often means a lower typical APR.
HP finance is usually taken over 1-5 years, although available terms differ between lenders. There are no limits on how many miles you clock up.
You'll also likely need a good credit score to access the best HP deals.
What happens at the end of a hire purchase finance deal?
At the end of a hire purchase agreement, you have the option of owning your car outright. Depending on the hire purchase deal you signed up for this could even be automatic, but there is usually a small fee.
In many cases, you’ll need to pay a final fee to your lender before owning your car becomes official. This is known as the ‘option to buy’ fee and, depending on your deal, this could be as little as £1. Always check the terms of your hire purchase agreement before you sign it as this fee cannot be negotiated at a later date.
It’s worth remembering that the car is owned by the finance company until all the scheduled finance payments have been made and the ‘option to buy’ fee has also been paid.
It’s also worth noting that if you have paid off at least half of your hire purchase agreement, then you may have the option to return the car and walk away. This is known as ‘voluntary termination’ and you’ll want to check your contract to see whether this clause is included. For more on this check our guide on whether you can sell a car with outstanding car finance.
Is Hire Purchase car finance right for me?
Hire Purchase: Things to Consider
- While HP deals are designed for those who want to eventually own the car outright,
you don't actually own the car until you've made all the payments.
- Even though it's a cheaper way to buy the car overall, the monthly payments can be
more expensive than other finance options.
- It's possible to finance a car through HP if you have bad credit, but the best deals are saved for those with good credit.
Other guides related to car finance
Other Types of Car Finance
Frequently Asked Questions
This will vary depending on the type of car finance and your own credit score. Below are some representative examples of good APR rates for the different types of car finance:
Hire Purchase: 9.46%
Personal Contract Purchase: 5%
Personal Loan: 2.8%
The above are purely representative and are based on a good credit rating.
The amount you can afford to spend on a car will vary depending on your situation. The important thing is to make sure you can afford any repayments that your car finance agreement sets out. Missing repayments can cause issues between you and your lender and could end up in court or affecting your credit rating.
To work out what you can afford, try our car finance calculator.
The overall cost of car finance will vary depending on the type of car finance that you choose.
The cost of getting a car on finance will be the overall cost of the car, plus any interest owed over the term agreed.
For a personal contract hire agreement it’s worked out slightly differently; the amount you pay is calculated by the cost of the depreciation of the car over the term agreed.
Some types of car finance may also include fees for excessive mileage, any damage to the car or a maintenance cost, so keep an eye out for this.
If you want to find out what you can afford, check out our car finance calculator.
A voluntary termination agreement lets you cancel your car finance early. By law, you can voluntarily terminate a HP or PCP contract.
You can cancel HP and PCP agreements if you''ve paid back 50% of the total finance amount - and if the car's in good condition. The PCP balloon payment is included in the 50% - so you''d have to pay half of this too.
Not repaid enough yet? You may be able to pay the difference up front and then cancel the contract. But if you terminate after you''ve already repaid over 50%, you won't receive a refund.
Bear in mind, voluntary termination may appear on your credit file. But it probably won't affect your score.
Selling your car with outstanding finance depends on the type of car finance you have.
On a hire purchase agreement you technically can't sell your car, but if you've repaid 50% you may be able to return it to your lender, or else pay the remaining fees before you sell it on.
On a PCP agreement it works in the same way as the hire purchase in terms of returning it. However, as you'd have to opt in to owning the car at the end with the additional cost of the balloon payment.
You can sell a car on a personal loan agreement, but it will still be on you to make the repayments from the original agreement.
You cannot sell your car on a personal contract hire agreement as it's never yours to sell.
A general rule of thumb for a deposit for hire purchase agreements is that a larger deposit can be more beneficial in the long run, but it all comes down to what you can afford.
Generally, if you have cash reserves but a lower monthly income you will be better off with a large deposit. If you have less savings but a better monthly income, you may need to consider a lower deposit.
HP agreement terms can vary. They''re usually between two to five years, but can be shorter. The term length can affect the monthly payments, as well as the deposit.
The cost of a hire purchase agreement will change depending on a number of factors:
- The type of car
- The length of your agreement
- Your credit rating
Our car finance calculator can help you work out what you can afford.
On a hire purchase agreement, the lender is the legal owner of the car during the course of the agreement.
At the end of the term, once you have paid all outstanding costs, you will be the legal owner.
If you make all of your payments across the term of the agreement a hire purchase deal can be good for your credit rating. This is because it shows you have the ability to make regular payments over time and pay off your debts.
If you miss a payment, or a number of payments, it can however have a negative affect on your credit rating.
There is no annual mileage limit on hire purchase car finance. You’re free to drive as much as you want.