What is Hire Purchase?

Hire Purchase (HP) is a finance credit agreement designed to get you behind the wheel by spreading the cost of your chosen vehicle across a fixed period of time through monthly payments. Once your contractual agreement term ends, you own the car.

A Hire Purchase deal is often arranged through the dealer that you buy the car from and would begin with an initial down payment or deposit. You may have the option to pay your deposit through cash or through a part-exchange and trade-in scheme depending on the terms of your dealer. The amount of deposit you pay will determine your monthly payment rate, that is, the higher your deposit, the lower your monthly payment. Your contract will usually last sometime between 12 and 60 months but can be altered to suit your needs. A longer contract will mean lower monthly payments and vice versa.

To illustrate:

Car price

Agreement Term

Your monthly car loan payment


12 months

60 months (5 years)

£20,000/12 = £1,667 (plus any interest)

£20,000/60 = £333 (plus any interest)

In short, under a Hire Purchase plan (HP) you choose your car, how much deposit to put down, the term of the contract and own the car once you have paid your final instalment.

Advantages of a HP car finance deal
  • You get to drive your chosen car without having to buy it outright.
  • Your monthly payments go towards an end goal of owning the car meaning once your agreement ends, you become the legal owner.
  • You can end the agreement at any time by settling the outstanding amount
  • You don’t need to worry about wear and tear costs as the car will be yours to keep at the end of the fixed contract term.
Disadvantages of a HP car finance deal
  • You only become the legal owner of the car once you have paid your final instalment.
  • Your car loan agreement is secured against the vehicle – any missed payments can result in the repossession of the vehicle and affect your credit.
  • What you pay back will likely be more than what you would with a PCP finance deal as you are paying for the total cost of the vehicle.

Is a HP car finance deal the best deal for me?

A HP finance deal could be the best deal for you if:

  • You wish to become the legal owner of the car at the end of your agreement.
  • You don’t want to worry about any annual mileage restrictions or incurred costs of damage/excessive wear and tear.
  • Higher monthly payments aren’t an issue.