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Hire Purchase (HP) car finance

Hire Purchase is one of the most common ways to buy a used car. This guide will help you find out if it works 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.

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). The car 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.

It’s Zutos most popular type of finance for used cars and is generally simpler to understand than the alternative, Personal Contract Purchase (PCP), which is based on a car’s depreciation.

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

1. Your deposit                     

This is usually optional. The more you can afford to pay for your deposit, the better as 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 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 10.9%, but it 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. 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 contract, there may be an acceptance or document fee. It can vary so check before you make an agreement. When this and your monthly payments are met you will own the vehicle. 

Hire Purchase example

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

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

Below, we’ve got a couple of examples – one for two years, one for 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:

  • 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.

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.

Is Hire Purchase 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 – that’s 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

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  • Easy to budget, as you know exactly what you need to pay each month.
  • You may be able to afford a better car than you would if you paid 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

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

What to think about

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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 – which is marked on your credit history – and get a formal offer from the lender.

Hire Purchase with bad credit

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For many people thinking about car finance, bad credit can be a concern.

But the good news is lots of drivers can get finance arrangements for a new or used car even if they don’t have a strong credit history or a large deposit.

Useful information and guides

  • thumb

    How to get car finance with bad credit

    If you have a poor or bad credit rating, you may still be able to get car finance with our panel of lenders. Find out more with our guide.

    Read our guide
  • circled-pound

    Getting car finance without a deposit

    Not all lenders require a deposit. In our guide, we explain how the process usually works and what you need to know.

    Read our guide
  • phone

    Contact us to talk to one of our advisers

    We have people on hand to guide you through it all – from how to improve your credit score to finding a car.

    Contact us


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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Yes, 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.

Can I get Hire Purchase when buying privately?

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Yes, you can get car finance when buying a car privately.

Can I get Hire Purchase with any car dealer?

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Zuto has a list of approved dealers. When you apply for a quote, you can browse cars from these trusted dealers in your MyZuto account area.

Will I pay more with Hire Purchase than the vehicle is worth?

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Yes, because interest – known as APR – will be added to your monthly repayments. However, the monthly costs mean you might be able to drive a better car than you might otherwise be able to afford in one go with cash.

Can I pay off my Hire Purchase agreement early?

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Yes, usually via a settlement figure. Contact your lender to find out the best way to do this.

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, but 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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