Hire Purchase Finance

What is hire purchase car finance?

Hire purchase car finance (sometimes known as HP), is a flexible and affordable method of purchasing a brand new or used car. Hire purchase finance works by paying a deposit upfront and spreading the remaining cost of the vehicle over monthly repayments. Once the term of the contract is over and the repayments have been made you own the vehicle outright.

Hire purchase makes up around 10% of the UK car finance market and many motorists find that this type of finance is right for them due to being more cost effective in the long-run. As you are paying an upfront deposit since you are paying off more of the debt of the car and less interest is accumulating.

How hire purchase finance works

Similar to how a mortgage functions, a hire purchase as finance is secured against the vehicle. But you are working towards owning the car outright and after the length of your hire purchase contract, you will have no more payments to make.

Put down an initial deposit

In most hire purchase finance deals the amount you have to pay as an initial deposit is typically 10% of the car’s value. However, some lenders may accept contributions towards this such as offering your old vehicle as part-exchange. The higher your initial deposit, the lower your monthly payments will be for the remainder of the hire purchase term.

Borrow the outstanding amount

Once you’ve put down your initial deposit, you will then borrow the outstanding amount of the value of the vehicle from your lender. After borrowing the money, you will set an interest rate and an agreed payment period.

Set up monthly repayments

The monthly repayments you make during the term of your hire purchase are flexible and can be set to suit your budget. These repayments are usually higher than PCP payments and are calculated in line with your deposit in order to pay off the car’s predicted depreciation over the term of the contract.

You own the vehicle at the end of the term

When all your monthly payments have been made, you will own the vehicle outright. A hire purchase finance agreement will typically last for around three years and you have the option to cancel or settle early at any point, however additional fees may apply depending on the lender.

Advantages of hire purchase finance

You will own the vehicle outright

If you have fallen in love with your car or it suits your individual needs, whether you use it for business or day-to-day family challenges, you will be keen to keep it and may use it for the next 5, 10 or 20 years.

One big positive with hire purchases is that you are working towards owning the vehicle outright. When comparing hire purchase finance to other car finance alternatives like personal contract purchase, where you are essentially “renting” a vehicle and relying on a large balloon payment at the end of the term.

Pay less interest overall

Hire purchase finance agreements are one of the most cost-effective ways to buy a car. Because you are paying more upfront, you won’t have to spend as long repaying the rest of the car’s value and accumulating more interest over time.

Can get contributions

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

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.

Why choose Quick Car Finance for hire purchase finance

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 car finance 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.

Hire Purchase Finance FAQs

Is hire purchase finance 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.

What happens at the end of the hire purchase 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 to somebody else, sell it or buy a new one. 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 if you don’t want the car on your hire purchase anymore?

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.