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Hire Purchase - What You Need To Know

Hire purchase (known as HP), allows you to purchase a new car by paying a deposit and monthly repayments, but you will get to own the vehicle outright at the end of the term. With slightly higher monthly repayments, hire purchase is less popular than other forms of vehicle finance, making up just 10% of all car finance arrangements in the UK. However, in many respects, this type of finance is more cost effective in the long-run, since you are paying off the more of the debt of the car and less interest is accumulating.

Hire Purchase - What You Need To Know

Hire purchase (known as HP), allows you to purchase a new car by paying a deposit and monthly repayments, but you will get to own the vehicle outright at the end of the term.

With slightly higher monthly repayments, hire purchase is less popular than other forms of vehicle finance, making up just 10% of all car finance arrangements in the UK.

However, in many respects, this type of finance is more cost effective in the long-run, since you are paying off the more of the debt of the car and less interest is accumulating.

Hire purchase as finance is secured against the vehicle, but you are working towards owning the car outright and after 3 years, you will have no more payments to make.

How HP works:

  1. Initial deposit – Usually a minimum of 10% deposit required, although some dealers may offer contributions towards this. You may be able to cover your deposit by part-exchanging an existing vehicle. The higher your initial deposit, the lower your monthly payments thereafter.
  2. Monthly payments – Set according to your budget and affordability, they are usually higher than PCP payments and are calculated in line with your deposit to pay off the car’s predicted depreciation over the term of the contract.
  3. End of term, you own the vehicle outright – When all your monthly payments have been made, you will own the vehicle outright.

An HP agreement will typically last for around 3 or 4 years and you have the option to cancel or settle early at any point, however extra fees may apply.

Hire purchase pros

You will own the vehicle outright – The best reason for using hire purchase is that you are working towards owning the vehicle outright. When compared to the alternative of PCP, you are essentially “renting” a vehicle and relying on a large balloon payment at the end of the term, which may not suit a lot of customers.

If you have fallen in love with your car or it plays a large role in your life, whether for business or for your family, you will be keen to keep it and may use it for the next 5,10 or 20 years.

Less interest overall – With an HP arrangement, you are essentially paying off more of the debt of the car and this means less interest overall. This is one of the most cost-effective ways to buy a car.

Can get contributions – Although a minimum deposit of 10% is expected, it is common to get contributions from your dealer and this can pay towards the deposit of your new vehicle.

Hire purchase cons

More expensive short-term – Hire purchase is more expensive each month when compared to other car finance products such as PCP. This is because you are paying off more of the car in order to eventually own it outright. This turns off a lot of people who are looking for a quick and cheap way to buy a new car.

You may not like the vehicle – If you find that after a few months or years that you no longer like the car or manufacturer, you have unfortunately committed to a more expensive arrangement from one day own the car completely. Of course, you can sell the car privately or back to the dealer, but there are a lot of reasons why you may not want to buy a car fully, whether it is for financial reasons or a changing lifestyle e.g retirement, new children

When do you own the vehicle with hire purchase?

Very simply, you will own the vehicle outright at the end of the hire purchase agreement, which usually lasts for 3 or 4 years. After this point, you will not have any further finance payments to make.

What happens at the end of the term?

At the end of the term, you will be the full owner of the vehicle and you will not have any finance left on the car. You will therefore not need to make any further payments and you can continue to use the car with no finance payments forever.

You always have options since it is your vehicle, whether you want to keep it, gift it, sell it or buy a new one.

Is hire purchase right for me?

Hire purchase is ideal for people who are looking to own a vehicle outright and take a longer term view on car ownership. For people that like to get the latest vehicle and change them regularly, this is not always the best option. However, hire purchase is certainly more cost effective and a more practical way to go about buying and owning a car.

How can Quick Car Finance help with hire purchase deals

At Quick Car Finance, we compare over 48 different car finance deals to help you find the most competitive rates for your dream car. We work with a number of leading car finance providers and have cross-checked dealers across the country to ensure that their prices are fair, competitive and transparent.

We compare all kinds of vehicle finance, including hire purchase, which we recommend as a viable way to purchase a new car.

Our entire online application is free to use and will provide you with a list of competitive rates and quotes. Once approved and all final checks have been made, we will transfer your funds to the dealer and you can be on the road with your new car within 24 to 48 hours.