Hire purchase, or HP finance, is a popular way to finance a used car you want to buy when you don’t have the money available at the time.
Hire purchase is available to people with excellent credit scores as well as those with poorer credit scores, making it a common option for financing a new or used car.
HP finance allows you to spread the cost of the car over a period of time (typically between 3 and 5 years) by making regular monthly payments.
What is Hire Purchase finance and how does it work?
If you decide to take out a hire purchase agreement, you will enter into a contractual agreement with the finance company (the lender) to “hire” the car for an agreed period of time (known as the term) while making monthly payments.
At the end of the agreement, you will have the option to pay an additional fee (called the option to purchase), which allows you to own the car outright. This can be a great way to buy a car if you plan to keep it at the end of the agreement.
While you are in a hire purchase agreement, the car will be owned by the finance company, and there will be certain restrictions on what you can and cannot do with the vehicle until the agreement ends.
Examples of restrictions include:
- Making vehicle modifications
- Selling the car
- Using the car for business purposes
- Taking the car abroad
Each finance company will have its own specific restrictions, and these can vary depending on the lender. These restrictions will always be outline in the terms of the agreement, so it’s important to read through the HP agreement carefully and ask questions if you are unsure about any conditions.
You can read our guides selling a financed car, can you take a car on finance abroad? And Can I modify a car on finance?For more information.
Your responsibilities during the agreement
Alongside with any restrictions included in your finance agreement, there will also be responsibilities you must fulfil as part of your contract with the finance lender. Again, these can vary between lenders, so it is important to refer to the terms of your agreement.
Examples of common responsibilities include:
- Ensuring the is insured
- Keeping the car taxed
- Completing regular MOTs and servicing
- Keeping the car at your registered address
If you're taking out HP car finance for the first time, it's very important to fully understand the terms of the agreement and explore other available options.
Our guide to first time financing a car can help you gain a clearer understanding of what to expect and what you need to know before submitting your application.
What is the process with taking out HP finance?
The process of applying for HP finance can be straightforward. Most finance companies allow you to submit an application online. This application typically involves you providing details about yourself, your employment, financial commitments, and your address history.
If your application is accepted, you will receive information about:
- The amount you have been approved to borrow
- The interest rate offered
- The estimated monthly payments
- Any conditions attached to your acceptance
For example, you might be approved for a loan amount of £10,000, but the term of the agreement may be shorter than you would prefer, or a deposit may be required as part of the acceptance conditions.
If you are happy with the offer provided by the finance company, the next step is to carefully review and sign the documents for the HP agreement.
For more detailed information, check out our “How to apply for car finance” guide. It explains the application process in greater depth, including the documentation required, the personal details needed, and how the finance offer works.
HP finance with AutoMoney Motor Finance
To see if we can help you, call our friendly team on the Freephone number above, or click through to apply for car financewith us
Representative example
You could borrow £10,000 over 60 months with an initial payment of £490.66 (including £199 Admin Fee) followed by 58 monthly payments of £291.66 with a final payment of £490.66 (including optional £199 Option to Purchase Fee).
Total amount repayable will be £17,897.60.
29.3% APR, annual interest rate (fixed) 24.7%.
This example uses the representative APR. This is the rate at least 51% of customers are expected to get.
Lending is subject to status and additional affordability checks. Rates quoted are subject to change and will depend on lending amount and personal circumstances.
FAQs
Yes, you can voluntarily terminate (VT) your finance agreement at any time. To do this, you’ll need to make sure you’ve paid at least half of the total amount repayable, including any outstanding arrears. Once that’s done, you can return the car to the finance company with no further obligations. If you’re thinking about ending your finance agreement early, it’s a good idea to reach out to your finance provider. They can explain their specific requirements and guide you through the process.
Yes, you can settle your finance agreement early, as this is a right protected under the Consumer Credit Act. However, it’s important to check your agreement for any additional fees or terms related to early settlement. If you’re unsure whether fees apply or have questions about the process, it’s always a good idea to contact your finance provider directly for clarification.
Your insurance provider will need to pay the finance company the claim amount to clear the remaining finance on the vehicle. If the claim amount awarded is less than the balance owed on your agreement, you will be liable for the shortfall. In this case, you’ll need to make an arrangement with the lender to repay the difference, or contact your GAP insurance provider if you have one. It’s important to make sure your insurance policy is up to date, as you’ll still be responsible for the repayments on your finance agreement if it isn’t.