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 9.9% 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.
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.
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, Personal Contract Purchase (PCP), 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.
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.
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 10.9%, 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.
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.
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.
Based on a two-year contract, here’s what you’d pay, based on 10.9% APR:
The total amount paid by you for this example would be £8,302.96.
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:
The total amount paid by you for this example would be £9,118.24.
Hire purchase is one of the three main types of car finance, sitting alongside personal contract purchase (PCP) and personal loans.
Discover more helpful guidance from our team on all things related to hire purchase car finance.
For many people thinking about buying a car on hire purchase, bad credit can be a concern. Fortunately, lots of drivers can get hire purchase cars even if they have bad credit.
Not all lenders require a deposit. In our guide, we explain how the process usually works and what you need to know. Find out more:
We have people on hand to guide you through it all – from how to improve your credit score to finding a car:
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.
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.
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.
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.
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.
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.
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.
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.