What is Hire Purchase (HP)?

  • Split the price of a car across a deposit and monthly payments
  • Can cut total costs for drivers who know they want to buy the car outright
  • No large final payment needed to take ownership of the vehicle

What is Hire Purchase (HP)?

Only 10% of new car sales in the UK are made with cash. So it's understandable that you're looking into the different forms of car finance schemes.

Broadly there are three car-specific agreements. PCP (Personal Contract Purchase), PCH (Personal Contract Hire or leasing), and HP (Hire Purchase).

Hire Purchase helps to spread the cost of a car over a set period of time. It's primarily aimed at people who know they want to own the car at the end of the finance term.

But what is Hire Purchase? And is it right for you?

>> Lease or buy a car - rent or keep?

What is Hire Purchase?

Hire Purchase is the simplest of the major forms of car finance to explain. The cost of the car is split across a deposit and a set of monthly payments. Once you've paid the last instalment, you own the car - there's no need to pay a final instalment like with a PCP agreement.

Some firms may make you pay additional fees, like an acceptance fee or an option to purchase fee.

Hire Purchase example

Cash price of car: £10,000
Deposit: £1,000
Monthly instalments: £192.87
Option to purchase fee: £200
Term: 60 months
APR: 11.3%
Total amount payable: £12,672.20

The APR rate here used is from a well-known British motor group. Much lower interest rates are associated with dealer-backed finance packages. The rate offered to you is also largely dependent on your credit score.

>> 0% APR deals

Hire Purchase advantages and disadvantages

Hire Purchase advantages

> No need to save up for a large final payment
> In some instances cheaper than a PCP deal
> More agreement lengths than PCP or leasing

Hire Purchase disadvantages

> Not as ubiquitous as PCP
> Not as simple as leasing
> Higher monthly payments than PCP

Higher monthly payments but no large final payment

As there is no final payment needed to take ownership of the car – as there is with PCP – monthly Hire Purchase bills are typically much higher than a PCP alternative. However, you won’t have to save a large lump sum during the contract to purchase the car outright at the end of the scheme.

Potentially pay less overall than buying a car with a PCP plan

Though people on a tight monthly budget can get more car for their money with PCP set-ups, anyone looking to buy a car may get a better deal overall with a Hire Purchase agreement. As the driver pays off a greater amount of the car’s cost every month, less interest is added to the bill than with a PCP plan for an identical model, if the APR figures are the same (though there is no difference with 0% APR offers).

However, while some companies offer the same discounts on Hire Purchase plans as PCP alternatives, other brands offer more substantial savings on PCP schemes – in the form of deposit contributions – making these cheaper overall for anyone intending to buy the car. 

Therefore, it’s worth comparing Hire Purchase and PCP offers closely to see which has the larger incentives, better APR figure and lower total cost – even if you’re sure you want to keep the car at the end of the finance contract.

Longer term contracts available with Hire Purchase

HP agreements are typically available over a longer period than PCPs, which in turn reduces the monthly payment. PCP offers usually run over three or four years, Hire Purchase options can last up to five or even six years – though you can reduce the period if you have a larger monthly budget.

2020 Hyundai Kona Electric

Shop around and you can find five-year, 0% APR offerings, too, meaning that you can split the price of a car across a deposit and 60 monthly payments. As there is no interest to pay in this case, this can be a great value way of making a new car more affordable. 

Not all brands offer Hire Purchase

While some car companies give you the option to buy a car through Hire Purchase, a number of brands focus on PCP and leasing deals instead. So if you plan to buy a car outright through finance, you might have to opt for a PCP plan or simply get a better deal by opting for one. 

Don’t be put off, though; the best PCP schemes offer low or zero-interest, more affordable monthly costs and give you the option to hand the car back if you don’t like it as much as you hoped, or want to upgrade to a newer model.

No mileage caps or damage waivers

Hire Purchase offerings don’t cap your mileage or issue charges if you damage the car – as you will own it at the end of the scheme. However, you could be stung with large charges for exceeding the agreed mileage limit or returning a damaged car with PCP offers.

Further reading:

>> All of the manufacturer-backed no deposit deals
>> No deposit 0% APR deals revealed
>> Used car finance explained
>> Best cars for £90 per month
>> Best cars for £100 per month
>> Best cars for £150 per month
>> Best cars for £200 per month
>> Best cars for £300 per month
>> Best cars for £400 per month
>> Top PCH, PCP, and cash deals