Hire Purchase Finance

Whether you’re a first-time car buyer or looking to upgrade your current car, understanding the complexities of hire purchase (HP) can be crucial to making the right decision about financing your next vehicle.

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What is Hire Purchase?

HP, or hire purchase, is a popular financing option for acquiring a vehicle. It’s a type of loan agreement between a buyer and a finance company or dealership.

With HP, you pay an initial deposit, followed by monthly instalments over a fixed period, typically one to five years.

The finance company technically owns the car during the HP agreement until the final payment is settled, but you have full use of the vehicle during the agreement period. Then, once the final instalment is paid, ownership of the car is transferred to you.

The Pros of HP finance

  • Affordable Monthly Payments: Car financing through HP allows you to spread the cost of the car over a fixed period, making it more affordable than purchasing outright.
  • Car Ownership: Unlike other forms of car financing where you may only be leasing the car, HP allows you to own the vehicle outright once you’ve made the final payment, providing you with an asset at the end of the contract for the monies you’ve paid.
  • Flexible Deposit: Typically, hire purchase agreements allow you the flexibility to choose the initial deposit amount, which can range from a small percentage to a larger sum. A flexible deposit allows you to tailor the agreement to your financial situation, including the monthly repayment amount.
  • Lower Interest Rates: HP typically offers lower interest rates than other borrowing forms, such as personal loans or credit cards, resulting in cost savings over the life of the agreement.
  • Fixed Monthly Payments: With a hire purchase contract, you have the advantage of fixed monthly payments throughout the agreement, making budgeting easier.
  • Possible Early Settlement: Usually, HP agreements allow you to settle the outstanding amount early if your financial situation improves or you come into some extra funds. So, early repayment of the contract can save you money on interest charges and give you the freedom to own the car sooner.


What to look out for?

  • Ownership Transfer Delay: Until you make the final payment, the finance company technically owns the car. It means you cannot sell or modify the vehicle without their consent until ownership is transferred, restricting your freedom to make changes to the vehicle during the agreement.
  • Higher Overall Cost: While HP can be an affordable option for monthly payments, the total overall cost of the vehicle may be higher than buying it outright because of interest charges and fees associated with the financing agreement. It’s, therefore, advisable to calculate the total amount you will pay over the term of the HP to understand the true cost.
  • Risk of Repossession: If your financial situation changes or you lose your job and fail to make the monthly payments as per the agreement, there is a risk of repossession. The finance company has the right to take back the vehicle if you default on repayments, impacting your credit rating and financial situation.
  • Maintenance and Servicing Costs: Despite the finance company technically owning the vehicle, you will be responsible for servicing, maintenance, repairs, insurance, and any other associated costs, so it’s essential that you budget for these expenses on top of the monthly payments


Is Hire Purchase the right one for me?

Determining whether HP is the right option for your circumstances requires careful consideration of your financial situation and personal preferences and aligning them with the right car financing option.


Things to consider may include your budget and affordability and whether your financial situation may change over the coming years. Also, bear in mind the interest you will be paying against purchasing a vehicle outright.


The most common questions

How does HP work?
Is a deposit required for an HP agreement?
Are there mileage restrictions under an HP agreement?
Can I settle the HP agreement early?
What happens if I miss a payment?
Can I modify or sell the car during the HP agreement?
Are there any additional fees or charges with HP?
What happens at the end of a hire purchase agreement?