man and woman buying new car

HP car finance

Hire purchase is one of the most common ways to buy a new or used vehicle. This guide will help you find out if HP car finance is right for you.

Zuto is a credit broker, not a lender. Our rates start from 7.9% APR. The rate you are offered will depend on your individual circumstances. Representative Example: Borrowing £7,000 over 48 months with a representative APR of 19.3%, the amount payable would be £205 a month, with a total cost of credit of £2,831 and a total amount payable of £9,831.

What is Hire Purchase finance?

Hire purchase – sometimes just called HP – is a type of car loan that allows you to pay for a car in regular monthly instalments.

Simply put, the cost of the car is split into chunks that you pay off over a set time (with interest), usually between 12 and 60 months (one to five years). Buying a car on hire purchase means the vehicle is yours once the final payment is made.

How does Hire Purchase work?

With hire purchase, you effectively ‘hire’ the car from the finance company until you’ve paid all your monthly instalments – then it’s all yours.

Hire purchase finance is Zuto’s most popular loan type for used cars, and is generally simpler to understand than the alternative, PCP car finance, which is based on a car’s depreciation.

HP car finance agreements will vary depending on your lender and quote, but there are usually three easy steps to follow.

1. Your deposit                     

A deposit is usually optional. However, the more you can afford to pay upfront, the better - it will lower your monthly payments and reduce the total amount of interest you pay. But a deposit isn’t always essential, and we may even have no deposit options available.

2. Monthly repayments

Your repayments are essentially the cost of your car, divided by the number of months your agreements lasts for - plus the annual percentage rate (APR).

For Zuto customers, APR starts at 8.9%, but your rate depends on the lender and your own circumstances; a better credit score generally means a lower APR. Many lenders will allow overpayments to be made if you want to clear the finance quicker, but specific details will vary by lender.

Use our car finance calculator to find out how much you might be able to borrow, based on what you can afford.

3. End of contract

At the end of your hire purchase finance contract, there may be an acceptance or document fee. It can vary, so check before you finalise the agreement. When this and your monthly payments are met, you will own the vehicle. 

HP finance example

Hire purchase is simple. Here’s a quick example to show you how straightforward it really is:

You’re looking at a car worth £7,500, and you can afford a 10% deposit (£750). This means the finance company will pay the remaining £6,750.

Below, we’ve got a couple of examples – two years and four years. The longer the contract, the less you’ll pay each month; but you’ll eventually pay more in total.

Short hire purchase finance period

Based on a two-year contract, here’s what you’d pay, based on 10.9% APR:

  • Deposit: £750
  • Amount of credit: £7,500
  • 24 monthly payments: £314.29
  • Total interest: £792.96
  • Option to Purchase fee (estimated): £10

The total amount paid by you for this example would be £8,302.96.

Extended hire purchase finance period

If you wanted to reduce the monthly repayments and spread them over a four-year contract, that would look like this, based on 10.9% APR:

  • Deposit: £750
  • Amount of credit: £7,500
  • 48 monthly payments: £174.13
  • Total interest: £1,608.24
  • Option to Purchase fee (estimated): £10

The total amount paid by you for this example would be £9,118.24.

Hire purchase finance calculator

See how much you could borrow

Is HP finance right for you?

Hire purchase is one of the three main types of car finance, sitting alongside personal contract purchase (PCP) and personal loans.

  • PCP finance is similar to HP but, instead of payments based on the car’s total value, you pay off its depreciation (the difference between what the car is worth now and at the end of the contract).
  • With a personal loan, you still pay in monthly instalments, but you own the vehicle from day one.

Advantages of HP car finance

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  • Budgeting is made easy with hire purchase finance; you know exactly what you need to pay each month.
  • You may be able to afford better cars on HP finance than if you pay a lump sum upfront.
  • The car is yours when you come to the end of the agreement.
  • If you have a poor or bad credit score, it could be easier to get HP finance than a personal loan, as the car is used as security for the debt.
  • No or low deposits. 

Disadvantages of HP car finance

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  • If you are unable to make your monthly payments during the finance term, you may have to return the car.
  • HP finance usually comes with higher monthly payments than PCP.
  • Interest rates on HP car finance deals can be higher than with personal loans.
  • You can’t sell or modify the car during your hire purchase contract term without permission from the finance company.
  • When buying a car on hire purchase, you don’t own the car until the final payment.

What to think about

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  • Your credit rating: A better credit score can help you get better HP car finance deals. But don’t worry if you have a poor or bad credit rating – our panel of lenders may still be able to help get bad credit car finance.
  • What you can afford: Find the right balance for you, weighing up the total amount you’ll pay (including interest) versus what’s affordable each month; our car finance calculator can help you work out how much you can afford to borrow. Then consider the other costs of running a car, such as fuel, insurance and tax.
  • Other types of car finance: The main alternatives car finance options are Personal Contract Purchase (PCP) or a personal loan.

What happens when I apply?

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  1. Click apply or call us – we’ll take you through our process.
  2. Fill in some personal details – we’ll need to know details like how much you can afford to borrow, your address, your employment etc.
  3. We’ll check your credit score – we’ll carry out a soft credit check and send your details to our panel of lenders. A soft check means we can check your credit history without it affecting your score.
  4. We’ll call you to discuss your quotes – this usually takes around 5 to 10 minutes. There’s no pressure to agree to anything and deals are valid for 30 days.
  5. You can agree to a loan – if one of the deals works for you, let us know. We’ll then run a hard credit check and get a formal offer from the lender.

Useful information and guides

  • info-speech-bubble

    What is hire purchase

    Read our guide on the advantages and disadvantages of hire purchase car finance and how it differs to other finance options available.

    What is hire purchase
  • info-speech-bubble

    How to prepare for your car finance purchase

    Find out more on how to prepare for purchasing a used car on finance. HP vs PCP? Our guide will explain all the differences. 

    Read our guide
  • info-speech-bubble

    What's the difference between HP & PCP

    Our guide will help you understand the key differences between Hire Purchase and Personal Contract Purchase car finance. 

    Read our guide

FAQs

Can I pay off my Hire Purchase agreement early?

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You can usually pay off your hire purchase agreement early via a settlement figure. Contact your lender to find out the best way to do this.

Will I pay more than the vehicle is worth?

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Because interest – known as APR – will be added to your monthly repayments, you will pay more than the vehicle is worth with hire purchase finance. However, the monthly costs mean you might be able to drive a better car than you would otherwise be able to afford when paying the full amount.

What is an Option to Purchase fee?

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The Option to Purchase fee may be required at the end of your contract. For most of the lenders on our panel, it’s usually between £1 and £10, although, with some lenders, this may be higher. Once it’s paid, the car’s yours.

Can I use Hire Purchase to finance a used or new car?

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You can finance either a used or new car with hire purchase, although it tends to be most popular for used cars. We’re a trusted finance partner of AutoTrader, and we work with hundreds of dealers who go through our rigorous checks, so if you’re looking for a car, Zuto can help. Once you’ve applied, we’ll offer you a finance option that suits you, and you can search thousands of cars from our verified dealers.

Can I get Hire Purchase when buying privately?

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Yes, you can get car finance when buying a car privately. Find out more with our guide to getting finance options from Zuto when you buy a car from a private seller.

Can I get Hire Purchase with any car dealer?

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To make things easier for you, Zuto has a list of approved dealers – they have to pass our quality checks and tests, so you know you’re dealing with verified and legitimate dealers. When you apply for a quote, you can browse cars from these trusted dealers in your MyZuto account area.

What happens if I miss a payment?

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The impact of missing a payment depends on your lender. If you fall behind, you might be able to hand the car back (but you might still owe some money) or the finance company might repossess the vehicle. The best thing to do is to try to calculate what you can afford at the beginning. However, we and our panel of lenders appreciate circumstances can change. Get in touch if this happens.

Can I change my car during the contract?

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It’s usually fine to change your car during your hire purchase contract. Contact your lender directly or talk to one of Zuto’s advisers for any support.

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