What is HP Car Finance?
A Hire Purchase finance agreement is probably the most accepted way to buy a used car. You can spread the cost with monthly instalments over several years.
HP car finance deals are excellent for new drivers who want to own a vehicle when the agreement ends.
How do Hire Purchase Deals work?
Typically, you choose the vehicle you want and take out hire purchase finance for the car’s value. The car is security for the finance.
The HP agreement can be with the dealer. However, you are likely to get offered lower APR interest rates with an online finance broker.
With HP you will own the vehicle, but payments are higher
With HP finance, you own the car outright when you make the final payment (Option to Purchase Fee). You can keep the vehicle, sell it, donate it to a mate – whatever you want. It’s all yours!
As you own the car on final payment with an HP deal, you will have to pay higher monthly payments than other finance options like a lease or PCP. However, you can drive the vehicle as much as you want. You don’t need to worry about any accidental damage (as long as it doesn’t bother you).
You may need a deposit it depends on your credit score
With Hire Purchase finance deals, you can opt to pay an initial deposit at the contract’s start. However, plenty of 0% deposit HP deals are available if you don’t want to make an upfront payment.
The amount you’ll pay each month depends on:
- Size of deposit
- Length of agreement
- APR interest rate
- Choice of car
To sign up for an HP car finance deal, you’ll need to pass a credit history check. If you have a bad credit score, you might still get a deal, but the interest rate APR won’t be as generous.
What are the positives and negatives of an HP Finance Deal?
Although a hire purchase finance deal can put you in a car, you couldn’t otherwise afford. For you, it might not be the best financial deal. Check the pros and cons of HP finance:
- You will own the car at the end of the contract, so you’re not just paying the interest!
- In most instances, you can drive the car as much as you want.
- You can spread monthly payments (usually) from 3-5 years.
- As you’re paying off the car’s total value (plus interest), your monthly payments are higher than with other finance such as PCP or a lease.
- While you will own the car, you don’t own it during the term of the contract – so you can’t modify or sell the vehicle before the final payment without getting approval from the finance company.
- The future valuation of the car isn’t guaranteed. Do your homework and check if the vehicle you’re going for is prone to rapid depreciation.
Can I own the car outright with HP Finance?
A Hire Purchase agreement is probably the best finance for drivers who want to own the car at the end of the contract, especially if you have a dodgy credit score.
Monthly payments are higher with HP, but there is no balloon payment at the end of the contract.
With hire purchase agreements, the total cost of your car is in the scheduled monthly payments meaning at the end of the contract, you own the vehicle.
Similarly, if you’re happy to keep the same car for a while or you drive a lot of mileage for work, Hire Purchase finance is likely the best.
Hire Purchase Finance vs PCP – what’s better?
Hire Purchase, and personal contract purchase PCP deals are the most popular car finance options. They’re similar in that you pay a fixed monthly payment to the lender.
However, there are distinct differences.
The Hire Purchase finance is better if you want to own the car and don’t mind higher repayments. You also have no mileage restrictions.
However, if you want lower monthly payments and don’t want to own the car, a PCP is probably better. But, you’ll have mileage restrictions.
You can purchase the car at the end of a personal contract purchase PCP deal – but you’ll have to pay the substantial balloon payment, a lump sum.
Hire Purchase Finance Deals vs Car Leasing – what’s better?
A car lease is very different from a Hire Purchase deal.
You pay cheaper monthly payments with a car lease deal but don’t pay off the car – you have to hand it back. And you’ll be limited by mileage restrictions and car condition requirements.
You’ll have dearer monthly repayments than a Hire Purchase finance deal, but you own the vehicle once you make the final payment. Mileage restrictions or car condition requirements don’t limit new.
HP Car Finance vs Personal Car Loan – what’s better?
A car loan and a hire purchase contract can be pretty similar. The significant difference is that with the car loan, you own the vehicle when you hand the money over to the dealer.
That means you can sell the car or modify it if you want – as long as the bank gets back their money, they don’t care what you do with it.
The downside is car loans can often come with higher interest rates than a Hire Purchase HP, meaning the monthly repayments can be more expensive.
Representative example of an HP Car Finance Deal
Representative example of how a finance company works out an HP car finance deal
We have picked a popular new driver’s car from the Autotrader website. A Renault Clio 1.2 16V Dynamique MediaNav 5dr 2016 White with 56,000 miles on the clock.
Car priced at £7,000 May 2022
- Deposit: £1,000
- Option to purchase fee (to transfer ownership to you at the end of the term): £100
- APR: 6.9%
- 48 Monthly HP payments: £143.40
- Total Interest charged: £883.20
Total amount payable: £7983.20
Figures from the moneycalculator.com
These are the details you need to ask for when comparing HP offers on a car:
- APR, you’ll be paying.
- Total amount repayable.
- The total cost of interest
- Any additional fees.
How do I find the best HP Deal
Seven reasons why it’s best to choose an online broker for your HP Car Finance
- A fully approved offer for HP car finance from an online broker is the equivalent of the money in your pocket.
- With the money sorted, you are in a solid position to haggle your car purchase with the dealer.
- You have the choice of buying a car from whichever dealer you choose.
- You receive expert advice from a dedicated finance manager able to find the best solution to match your credit history and affordability.
- If you have a poor credit score, you may find getting financing from a dealership challenging.
- Say there is a problem with your application. It can be resolved privately, not in the showroom.
- A vast panel of finance companies is far more likely to help find you the best HP finance deal.
Reducing the term of the HP will save money
Think of the total cost. It’s tempting to look at low monthly payments. But always add up what the total cost will be. Reducing the term of the HP might mean slightly higher monthly repayments but a lower overall price.
Read the contract – understand the principle points
Please be sure you know exactly how your car finance deal will work. It’s essential to remain vigilant when signing an agreement despite its benefits.
When reading the contract, look for these specific conditions to avoid unnecessary charges and stress.
- Mileage limit.
- Service requirements.
- Damage charges.
- Payment schedule.
- Late payment policy.
- Insurance policies.
Know your legal rights when taking on an HP contract
When taking out a hire purchase agreement to buy a car, check out your rights.
Let us find you the best Hire Purchase Deal
Used car finance can help give independence to many people. A car is an everyday necessity in life.
Going to work, college or university, your car becomes your friend. Hey, people even talk to their vehicle and more people than not give their car a name. We work with an extensive panel of lenders to source you the best HP car finance deals.
Your credit should not be a problem. We source hire-purchase loans for drivers from excellent to those with poor credit.
You’ll have your account manager available to advise you.
The next step is to apply for a Hire Purchase Deal
What car are you thinking of buying on finance? Maybe you like to drive something like a new Ford Fiesta on PCP or perhaps a used but excellent Nissen with an HP deal. Dive in and deal through us.
Start by filling in a quote; hopefully, you’ll get approval in principle. Next, your dedicated account manager will phone you to discuss your options and the questions you are bound to have. You can look through the search of over 100,000 used cars waiting to find an owner, or perhaps you have found a car elsewhere with a dealer. We can help find you car finance for that also.
FAQs - HP Car Finance Deals
What is HP car finance?Hire Purchase HP is available to buyers looking to purchase a car and own it outright. An HP finance deal enables you to make monthly instalments. You must be at least 18 to apply for a Hire Purchase car finance. The finance companies will require you have at least three years' UK address history.
What is the best car finance deal for me?Do you want to own the car outright at the end of the agreement! Then HP car finance is ideal, especially if you have less than perfect credit. However, if you prefer to swap your cars every few years, it's a PCP. The repayments are lower than HP, but you won't own the vehicle unless you pay the GMV. However, there are several exit options at the end of a PCP contract. Alternatively, you can lease a car but have no opportunity to purchase it.
Will buying a car on HP finance affect my credit rating?When applying for car finance, a soft search is done on your credit file to look for an offer in principle from lenders. A soft search has zero impact on your credit rating. However, when accepting an offer a hard search can affect your score , so avoid too many hard searches. Buying a car on finance may impact your credit rating but should be temporary. An impact on your credit score often happens when you take on a somewhat large debt such as car finance. Continue to manage your finances positively by making payments on time, and your credit score will right itself.
What deposit do I need to finance a car with a hire purchase agreement?Paying a deposit on a car will reduce the amount you need to borrow and increase your likelihood of getting accepted for finance. There is no regular amount for a deposit to be paid on a vehicle for HP finance, but 10% of the vehicle's value is not uncommon. If you already own a car, either selling or part-exchanging can be the equivalent of a deposit paid. You may also find No Deposit car finance deals they are available.
Can you pay off HP finance early?If you decide to pay the finance off early with a Hire Purchase HP deal, you request a settlement figure from the finance company. The figure includes the outstanding sum plus the interest due. Of course, the more you've paid off, the less the settlement figure. Always check what charges are for an early settlement with any finance agreement.
What is an Option to Purchase fee?Typically with a Hire purchase, you pay an OPT (Option to Purchase Fee) at the end the HP to transfer the car legally to your name. The amount can vary between finance companies, but, but £100 is not uncommon. Be assured it's a lot less than a balloon payment on a PCP.
Can I sell a car that's on an HP contract?The answer is no! It is not yours to sell. The finance company still owns the car! However, if you don't want to wait until the end of the Hire Purchase agreement, you can ask the finance company for a settlement figure to end the contract early. Memo: Nor can you make any significant mods to the vehicle until you are the car's legal owner.
What happens if you can't afford the HP repayments?Suppose you can't afford your HP repayments and you have already repaid 50% of the total amount payable. You can terminate your agreement and hand the vehicle back voluntarily. The total amount payable doesn't just mean the amount you've borrowed. It also includes any fees or interest. If you want to keep your car, you may be able to reduce your monthly payment amount by applying for a refinance. You take out a new finance agreement, usually with a new lender, to pay the balance on an existing hire purchase when you refinance. Until you have paid a third of the total amount of the vehicle, the lender can repossess the car without needing to get a court order.