Hire Purchase (HP) Information

If you are looking for a very straightforward way to buy a car, then Hire Purchase (HP) is a very accessible method. The essential difference between this and either PCP or PCH is that you will fully own the car at the end of the agreement upon payment of the final balance. These contracts are uncomplicated, can be quickly organised and can be set up through most car dealerships.

In essence, a Hire Purchase agreement gives the buyer an option to buy the car at the end of the agreement period. Normally set up on a fixed contract basis, meaning that APR (Annual Percentage Rate) is established before the contract starts to run. This approach is therefore particularly useful when planning a budget. The period of the loan is also fixed – running in most cases for periods of three to four years respectively – and the finance agreement is secured against the car being bought.

If you are the official registered keeper of the car you will also have additional responsibilities. Ensuring the car is insured and maintained (and where appropriate obtaining an MOT document) is essential. Be aware however the finance company is the legal owner until the full amount borrowed has been fully repaid.

At the Start of the Agreement:

  • Be clear about the amount you are looking to borrow which is based on the price of the vehicle less any deposit required.
  • Consider a part-exchange of your current car to help cover the deposit. In some situations certain car finance companies offer promotions enabling a contribution to top up the customer deposit further.
  • At the point the final loan amount is mutually agreed, the dealership will get in touch with the finance company or broker and will finalise an application based on this amount.

At the End of the Agreement:

  • When all the required monthly payments have been made there will be an option to purchase the car and gain complete ownership. This is called an 'Option to Purchase' fee and covers the admin costs to the finance company of transferring ownership of the car to you.
  • Under a conditional sale agreement ownership passes to the buyer automatically as soon as finance is fully paid.
  • If you wish to settle a Hire Purchase agreement – either partially or in full – before the end of the agreement, then you are entitled to make early repayments to your finance company. In these circumstances you should discuss with them the best way to do this.
  • You will not be able to sell the car without first settling the finance.

Benefits of Hire Purchase

  • Easy to arrange in the car dealership and generally processed quickly.
  • You will have rights and protections under law as credit agreements are fully regulated.
  • The deposit paid at the start of the agreement can be low.
  • There is a choice of flexible payment periods – these are normally anytime between 1-5 years.
  • Monthly repayments are fixed at the same amount throughout the agreement.

Things to remember:

  • Ownership is not legally transferred until the end of the term which means it cannot be sold or modified without the permission of the finance company.
  • Under the Conditional Sale agreement, ownership of the car will transfer automatically as soon as the final repayment is made. This means no further action on your part is required.