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Advice

First published: 11th May 2015

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Advice

Buying a car using Hire Purchase (HP)

Is HP the best option for you when you're buying a new car?

First published: 11th May 2015
You pay a deposit – typically something like 10% of the car’s price – and then make monthly payments over a period of years to buy the car. However, you don’t own the car until the end
Pros:
  • You can buy out the remainder of the contract at any time you wish
  • There’s lots of flexibility with the size of the deposit that you put down
  • Salesmen are often on commission to sell HP from third-party finance companies, so good deals are there to be had
  • Buying this way gives you some extra protection if there’s a problem with the car as the finance company is liable as well as the dealer
Cons:
  • Interest rates are generally higher than with other forms of finance
  • If you leave the contract early, either by paying it off or just walking away, then you’ll have to pay a penalty charge – even if you’re up to date with all your payments
  • If you don’t keep up with the payments, then the car will be repossessed – and you’ll lose all the money you’ve already sunk into it
  • The car can’t be sold before that final payment unless you contact the finance company and agree a termination value
What is Hire Purchase?
Typically, a Hire Purchase agreement is arranged through the dealer you’re buying the car from. You put down a deposit – which may be as little as 10% of the car’s value and can often be covered by part-exchanging your current car – and then you pay off the rest via monthly payments over a set period of years.

You are the registered keeper of the car and responsible for insurance, servicing and maintenance, but the finance company is the legal owner of the car until the final payment. For that reason, you can’t sell the car without permission of the finance company.
Top Tips
  • Look out for dealers and/or manufacturers running special promotions on HP agreements. You may find they’ll contribute to your deposit or even give 0% APR deals.
  • Shop around between dealers for finance rates as well as car prices. To work out which is best, compare APRs and the total cost of the loan.
  • Some dealers offer a slightly different arrangement, called Conditional Sale, which we explain below
What is Conditional Sale?
A Conditional Sale finance agreement is near identical to Hire Purchase, except no admin fee (known as the ‘Option to Purchase’ fee) has to be paid at the end of the deal to transfer ownership of the vehicle from the finance company to you. You will automatically become the vehicle owner once you’ve made all of your repayments to the lender.