Representative Example: You could borrow £10,699 over 60 months with an initial payment of £495.89 (including £199 Admin Fee) followed by 58 monthly payments of £296.89 with a final payment of £495.89 (including optional £199 Option to Purchase Fee). Total amount repayable will be £19,012,40. 26.1% APR, annual interest rate (fixed) 13.3%.
Thinking about buying a car but don’t want to pay the full cost upfront?
Hire Purchase could be a simple and flexible way to spread the cost. Whether you’re buying your first car or looking for a used car on finance, HP lets you make monthly payments over time and gives you the option to own the car at the end. In this guide, we’ll explain how HP car finance works, what to expect during the agreement, and what happens at the end. We’ll also cover common questions like whether you can end your agreement early or what happens if the car is written off.
With HP finance, you don’t pay for the car all at once. Instead, you make fixed monthly payments to a finance company over a set period, usually between 3 and 5 years. These payments go toward covering the cost of the car, plus any interest agreed with the lender. While you’re making these payments, the car is legally owned by the finance company.
You’re essentially hiring the vehicle from them until the finance is fully paid off. At the start of the agreement, you may need to pay a deposit, although some lenders offer zero deposit car finance. The larger your deposit, the lower your monthly payments may be.
At the end of the agreement, you’ll have the choice to make a final payment, known as the "option to purchase" fee. This is a small fee (usually a few hundred pounds) that transfers ownership of the car to you. Once you’ve paid this fee, the car is officially yours to keep, sell, or trade in. If you choose not to pay it, the finance company still owns the car, and you may need to return it.
HP finance is straightforward and doesn’t involve mileage limits like some other options such as PCP. It can be a good option if you plan to keep the car long term and want to own it outright at the end.
You only become the legal owner of the car if you make the final payment at the end of the agreement. This payment is usually referred to as the "option to purchase" fee and is clearly stated in your finance agreement. Until that point, the car legally belongs to the finance company, and you’ll be expected to look after it according to the terms of your agreement. That includes keeping it taxed, insured with fully comprehensive cover, and serviced on schedule.
Once you’ve made the final payment, you gain full ownership of the car. This gives you the freedom to keep it for as long as you like, sell it privately, or use it as a part exchange if you’re buying another car. There are no more monthly payments due after this, and you don’t have to return the car to the finance company.
Owning the car outright can be a good choice if you want a long term vehicle without ongoing finance costs. However, if you’re unsure about keeping the car at the end of the term, it’s worth thinking about your long term needs before choosing HP finance.
HP gives you a path to owning the car, once the final payment is made, the car is yours. That’s one of the reasons many people choose HP when buying a used car or financing their first vehicle.
Yes, you can end an HP agreement before the full term ends, but how you do it, and what it costs, depends on where you are in the agreement.
One way to end the agreement early is through an early settlement. This involves paying off the remaining balance of the finance in a single lump sum. The finance company will provide you with a settlement figure, which includes any outstanding payments and fees. Once this is paid, the agreement ends and you own the car outright. Early settlement can sometimes save you money on interest, but make sure to check if there are any charges for paying early.
Another option is voluntary termination. This allows you to return the car and end the agreement once you’ve paid at least 50% of the total amount owed (including interest and fees). This option can be helpful if your circumstances change, and you can no longer afford the monthly payments. However, the car must be roadworthy when returned, or you could be charged for damage or excessive wear and tear. Voluntary termination is a legal right under the Consumer Credit Act, and it’s available to HP customers.
Before ending your agreement early, it’s important to speak with your finance provider. They can explain your options and let you know the costs involved. Ending HP early is possible, but it’s important to plan carefully so you don’t end up with unexpected charges.
If your car is involved in an accident and is written off, things can get complicated, especially if you're still paying it off under HP finance. In this situation, your comprehensive car insurance should pay out the current market value of the vehicle. However, this amount might be less than what you still owe on the finance agreement.
If your insurance pay-out doesn’t cover the remaining finance balance, you’ll still be responsible for paying the difference. This is where GAP insurance (Guaranteed Asset Protection) can help. GAP insurance is an optional policy that covers the shortfall between what your insurer pays and what you still owe to the finance company. Because the car legally belongs to the finance company until the final payment is made, you’re required to have fully comprehensive insurance for the duration of your HP agreement. This protects both you and the lender if the vehicle is stolen or written off.
If your car is written off, you should contact your finance provider immediately. They’ll guide you through the next steps, including how to settle the remaining balance. In some cases, the finance company may allow you to transfer your agreement to a new vehicle, but this will depend on their policies. Always make sure your insurance policy is up to date and that you understand how much cover it provides.
Because the finance company owns the car until you make the final payment, there are some important rules about how you can use it. These rules are set out in your finance agreement and are there to protect the lender’s interest in the vehicle.
You’re usually not allowed to sell the car, as you’re not the legal owner. Modifying the car, such as changing the paintwork, adding body kits, or upgrading the exhaust, may also be restricted. Some lenders may allow certain changes, but you must get their permission first. Using the car for commercial or business purposes is another common restriction, especially if your agreement is for personal use only.
Taking the car abroad can be limited too. You may need written permission from the finance company if you want to drive the car outside the UK. Each lender is different, so always check the small print before making any plans. Breaking any of these rules could put you in breach of your agreement, which may result in extra charges or even the finance being cancelled. That’s why it’s important to read your HP agreement carefully and ask questions if anything is unclear.
Even though you don’t legally own the car during the HP term, you’re still responsible for looking after it. This includes making sure it’s insured with fully comprehensive cover, taxed, and kept in good condition. You’ll need to keep up with regular servicing and MOT tests as required by law. If the car develops a fault, it’s your responsibility to get it repaired promptly. You’ll also need to keep the vehicle at your registered address unless you’ve told the lender otherwise. In short, you’re expected to treat the car as if it were your own and ensure it stays roadworthy and protected throughout the agreement.
If you’ve taken out a hire purchase agreement and the car turns out to be faulty, you may have the right to return it, but there are a few things to consider.
Under the Consumer Rights Act 2015, the car must be of satisfactory quality, fit for purpose, and as described at the time you bought it. If it develops a serious fault within the first 30 days, you can usually reject the car and ask for a full refund. This applies even if you’re financing it through HP, because your contract is technically with the finance company, not the car dealer.
If the problem appears after the first 30 days but within six months, you may still be able to get a repair or replacement. If the issue can’t be resolved, you may have the right to reject the car and end the agreement. However, you’ll usually need to give the dealer or finance company a chance to fix the problem first. After six months, it becomes harder to return the car unless you can prove the fault was present when you first got it.
If you believe your car is faulty, contact the finance company straight away. They’ll guide you through your options and may arrange an inspection or repairs. Keep records of all communication, and if you're not happy with their response, you may be able to escalate the issue or make a complaint. Getting a faulty car can be frustrating, but you do have rights and your finance company should help you find a fair solution.
The application process is usually simple, and most companies let you apply online. You’ll need to share your personal and financial details. This includes things like your name, employment, income, and outgoings.
If approved, the lender will tell you how much you can borrow, the interest rate, what your monthly payments will be, and any conditions. For example, they might ask for a deposit or offer you a shorter term than expected. Make sure you read everything carefully before signing the agreement. If something doesn’t suit your budget, ask about other options.
If you’ve been turned down before, don’t worry. Some lenders offer car finance for low credit scores or poor credit history. You can read more in our guide to car finance with bad credit. For more help, check out our full guide on how to apply for car finance, which explains the whole process in more detail.
