Hire Purchase (HP) Finance Explained

What is Hire Purchase (HP) Finance?

Hire Purchase, often abbreviated as HP, is one of the simplest forms of car finance available. With an HP agreement, you pay a deposit followed by fixed monthly payments over an agreed term. Once all payments have been made, you automatically own the car.

How Does HP Work?

Hire Purchase finance is straightforward and consists of:

1. Deposit

You typically start by paying a deposit, usually 10% or more of the car's value. Sometimes dealers may offer deposit contributions on new cars to reduce this initial payment.

2. Fixed Monthly Payments

You then make fixed monthly payments over an agreed period, typically between 1-5 years. These payments cover the full cost of the car (minus your deposit) plus interest.

3. Ownership

Unlike PCP, there's no large final payment with HP. Once you've made all the monthly payments, you automatically own the car without having to pay anything extra. There may be a small "option to purchase" fee (often around £10) to transfer ownership officially.

Key Terms in HP Finance

APR (Annual Percentage Rate)

This represents the total cost of the credit, including interest and any mandatory fees.

Fixed Interest Rate

HP agreements usually have a fixed interest rate, meaning your payments remain the same throughout the agreement.

Security

The finance company owns the car until all payments are made, and can repossess it if you fail to keep up with payments.

Early Settlement

You may be able to pay off the agreement early, potentially saving on interest, although early repayment charges might apply.

Advantages of HP Finance

• Straightforward arrangement with no complicated options at the end
• You'll own the car once all payments are made
• No mileage restrictions unlike PCP or leasing
• Fixed monthly payments make budgeting easy
• Can be arranged for nearly new and older used cars that might not be eligible for PCP

Disadvantages of HP Finance

• Higher monthly payments compared to PCP as you're paying for the entire car
• Less flexibility than PCP as you don't have multiple options at the end
• You don't own the car until the final payment is made
• Early termination can be expensive depending on how much of the agreement is left
• Less suitable if you want to change cars regularly

HP vs PCP: What's the Difference?

The main differences between HP and PCP are:

Feature	Hire Purchase (HP)	Personal Contract Purchase (PCP)
Monthly payments	Higher - paying for the whole car	Lower - only paying for depreciation
End of agreement	You own the car automatically	Choice to buy, return, or trade in
Mileage limits	No restrictions	Yes, with excess charges
Final payment	None (just a small admin fee)	Large balloon payment if you want to keep the car
Best for	Those who want to own the car and keep it long-term	Those who want lower payments and flexibility to change cars

Is HP Right for You?

HP might be suitable if:

• You want to own the car at the end of the agreement
• You plan to keep the car for several years
• You drive high mileages
• You can afford higher monthly payments than PCP
• You want a simpler finance arrangement without end-of-term complications

HP might not be suitable if:

• You want the lowest possible monthly payments
• You like to change your car every few years
• You're unsure if you'll want to keep the car long-term
• You want the flexibility to have multiple options at the end of the agreement

Using Our Calculator

When our HP calculator becomes available, you'll be able to estimate what your monthly payments might be by adjusting variables like:

• Car price
• Deposit amount
• Term length
• Interest rate

This will help you understand the total cost of buying a car on HP finance and allow you to compare it with other finance options.