Hire Purchase (HP) Finance Guide

Own your car outright, once all payments have been made

HP Finance Explained


Considering buying a new vehicle and wondering how to finance it? One of your options is Hire Purchase, often referred to as HP. Hire Purchase is a straightforward method of financing your car. Just decide how much you want to borrow and repay with fixed monthly payments over any period from 12 to 60 months. It makes budgeting for your car really easy, as the rates and monthly payments are fixed.

Even if interest rates go up, the interest rate on your finance repayments will not be affected. At the end of the contract the car is yours. With HP, you will only own the car once the final payment is made, so although you can't sell the car without first getting the finance provider’s permission, you may be able to part-exchange earlier than the end of contract. Where the part exchange offer exceeds the finance settlement figure this amount is yours to either keep or alternatively use all of or part of it as a deposit towards your next vehicle.

If the valuation amount is less that the settlement figure, then you have the option to remain in the original agreement longer and pay off more of the outstanding amount or you may wish to contribute the difference between these figures (known as negative equity) before entering into a new agreement.
 
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What are the benefits of HP?


HP could help you buy your next car whilst spreading the cost

Step 1: You’ll agree an initial deposit and your agreement term, and your monthly payments will be calculated. 

Step 2: Your deposit is taken from the price of the car. You’ll then pay the remaining balance and interest in monthly repayments over the agreed term.

Step 3: After you’ve made all the repayments including any interest and option to purchase fee, you will become the owner of the vehicle.

Step 4: There are no mileage restrictions on a HP agreement.

Fixed interest rate & Monthly payments - You’ll make equal monthly repayments with a fixed interest rate over your chosen period, typically between 12 and 60 months.

End of Agreement - You will own the vehicle after all the repayments including interest have been paid. An option to purchase fee of £10 is applicable with your final repayment.

Monthly repayments - You will pay higher repayments on HP compared with PCP for the same loan amount, term and APR as the full vehicle value plus interest has to be repaid by the end of the term.

Early settlements – You can pay off your agreement in full at any time. Settlements are calculated as per the Consumer Credit (Early Settlement) Regulations 2004, meaning you may be entitled to a rebate of some of the interest charged. The interest is added to the balance at the start of the agreement. Whilst you pay equal monthly repayments, the amount of interest you pay each month reduces over the term of the agreement so this will affect the level of rebate your receive.
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Here are some other important factors you need to consider:

Affordability - You should carefully consider your ability to make the repayments without difficulty during the agreement. You should only proceed if you are satisfied that the repayments are affordable and you are NOT aware of or expect any significant changes to your income or expenditure during the length of this agreement.

Consequences of not keeping up with repayments - If you do not keep up with your repayments, late payment interest and other default charges may become payable. Any missed payments will be reported to credit reference agencies, which may make it more difficult and expensive for you to obtain credit in the future. If missed payments are not repaid, in some cases the lender may take legal action to recover these.

You must:

  • keep the vehicle in good repair & condition and service as per manufacturer’s recommendations  
  • keep the vehicle in your possession and control, and not sell it
  • insure the vehicle with full comprehensive cover

You must not:

  • take the vehicle abroad (except to the EU for a maximum of 30 continuous days / 60 days a year)
  • alter the vehicle or use it for racing
  • make the agreement on behalf of someone else
Credit Footprint – Like all applications for credit, applying for dealer finance will leave a record on your credit file. 

The right of withdrawal - For HP & PCP agreements, if you are a private individual, sole trader or small partnership borrowing no more than £60,260, you will have the right to withdraw during a period of 14 days starting the day after the day on which you sign the agreement. To withdraw, you must give the lender written or oral notice within the withdrawal period.
 
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