Guide

Buying a car using Hire Purchase (HP)

A way of buying where you pay a deposit up front, then pay off the rest of the balance – plus interest – in equal monthly instalments. The repayments are comparatively high, but don’t change until the end of the agreement. Provided you keep them up, you will know exactly how much you are paying, and for how long. The car is yours at the end of the agreement.

Words by: First published: 11th December 2017
You pay a deposit – typically around 10% of the car’s on the road price – and make monthly payments over a period of years to buy the car. However, you don’t own the car until the end.
What is Hire Purchase?
A Hire Purchase agreement is usually arranged through the dealer you’re buying the car from. You put down a deposit – which can often be covered by part-exchanging your current car – then you pay off the rest via monthly payments over a set period of years. You can pay a larger initial deposit, or spread the cost over a longer period with a smaller deposit.

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.

Look out for dealers and/or manufacturers running special promotions on HP agreements. You may find they’ll help with the deposit or 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.
What is Conditional Sale?
The main difference between Hire Purchase and Conditional Sale is that the customer must buy the car at the end of a Conditional Sale agreement. There is no ‘Option to Purchase’ fee payable, like there is with HP, and you will automatically become the vehicle owner once you’ve made all your repayments to the lender.
Can you end a HP or Conditional Sale agreement early?
You can end an agreement early by paying off the rest you owe, and interest, in a single lump sum (settlement fee). Sometimes dealerships will offer to pay your outstanding finance if you choose to trade it in for a new model.
Pros of buying a car using HP:
  • You can buy out the remainder of the contract any time you wish.
  • There’s lots of flexibility with the size of the deposit you put down.
  • Buying through HP 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 of buying a car using HP:
  • Monthly payments are generally higher than with other forms of finance.
  • If you leave the contract early, either by paying it off or just walking away, you’ll have to pay a penalty charge, even if you’re up to date with your payments.
  • If you don’t keep up with payments, the car will may be repossessed, and you’ll lose all the money you’ve paid.
  • The car can’t be sold before that final payment, unless you contact the finance company and agree a termination value.