Cheap Hire Purchase

Spread the cost of buying your car

If you need a new car but don't have the cash to buy it outright, Hire Purchase (HP) is one of the most popular ways to pay for it. It's been used to buy cars almost since there have been cars, but just because it's an oldie, doesn't mean it's a goodie, and will be right for you. Here we break down the basics of HP so you can decide if it might suit you.

IMPORTANT! Did you buy a car on Personal Contract Purchase or Hire Purchase before 28 January 2021?

If so, you could be due £1,000s back. This follows the launch of a Financial Conduct Authority investigation into hidden, unfair car finance commission. Take a look at our Free car finance reclaim guide and tool to find out more and see if you may be affected.

MSE weekly email

FREE weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today – it's spam-free!

What is Hire Purchase?

Hire Purchase is a form of new or used car finance. Also called a Hire Purchase agreement or simply HP, it works as its name suggests – you essentially hire the car over the contract period, with a view to purchase it at the end of the deal.

Buying a car on HP finance works similarly to doing so via a personal loan – as you're borrowing and paying off the full cost of the car – though here you won't own it until you've made the final payment. Instead, the car is owned by the finance company – it pays the dealer on your behalf, then you pay it back.

The finance company uses its ownership of the car as security against the loan (like a mortgage), so if you fail to pay, it can seize the car. This can mean HP is easier to get than normal loans, though you'll usually need to pay a deposit (often 10% or more of the car's price). 

As the dealer will often be making money from the finance deal (usually it gets a commission from the finance company), you may find it offers discounts or contributions to the deposit on new cars – if not, you'll need to consider how to fund the deposit yourself. With used cars, it may mean you can haggle on the sale price. Always ensure you take into account all interest and any fees when calculating the deal's total cost, to work out the 'true' value of any discount.

Learn more about the advantages and disadvantages of Hire Purchase agreements below.

How does a Hire Purchase agreement work?

Once you've found a car you want to buy, you'll know the amount you want to borrow. Here's an example to explain how HP finance works, using a car priced at £14,000.

  1. You pay a deposit – 10% in this case (£1,400).
  2. You borrow the amount outstanding at a set interest rate over an agreed repayment period – so £12,600 at 5% APR over three years.
  3. You then make monthly payments to the car finance company – £378 a month.
  4. After three years and your final repayment, you take ownership of the vehicle after paying a transfer fee – £100 in this case.

Remember, if you fail to keep up with your payments, the finance company is entitled to seize the car.

Not the car finance option you were looking for? Check these out...

Personal car loans | Personal Contract Purchase | Car leasing

Also see: Compare personal loans

Alternative types of car finance to consider

This guide focuses on Hire Purchase (HP), though before you go on, do check these alternative types of car finance to assess if they'd suit you better. 

Broadly speaking, there are six different ways to pay for a car. The table below has the key differences at a glance, before we run through the alternatives to buying a car on HP finance in more detail.

Comparing ways to finance a car purchase

Finance type Typical length of agreement? Initial deposit required? Who owns the car? Mileage restrictions?
None – cash savings N/A N/A You No
0% credit card Up to 25 months No You (though you'll still need to repay the debt) No
Personal loan Usually 1 to 7 years No You (though you'll still need to repay the debt) No
Personal Contract Purchase Usually 1 to 5 years Yes (i) The finance company, unless an optional final balloon payment is made Yes (ii)
Hire Purchase Usually 1 to 5 years Yes (i) The finance company, until the final repayment is made, then you No
Leasing/Personal Contract Hire Usually 1 to 4 years Yes (i) The finance company, at all times Yes (ii)

(i) In most circumstances, though sometimes you can get a deposit contribution from the dealer or structure a lease deal to pay nothing upfront. (ii) You'll usually agree an annual mileage limit with the finance company at the start of the deal & will pay additional fees if you are over this when handing back the car.

Sadly, there's no 'one-size-fits-all' answer to which wins (as much hangs on whether you want to own the car and other factors). However, we've included more information on each alternative to PCP below, to help work out which is right for you.

  • Cash savings – the cheapest option for most cars

    The clear winner if you want to own the car fully from day one, as you'll avoid paying any interest or taking on debt. Though if you're looking to buy a brand new car – which on average loses about 40% of its value by the end of the first year – and are likely to change it in the next few years, it's worth considering a leasing or Personal Contract Purchase deal below. With these, the overall cost of ownership can work out cheaper.
  • 0% spending credit card – no interest if you can get a big enough credit limit (and the dealer accepts cards)

    Depending on the price of your new car, a 0% spending credit card could be the next cheapest way to borrow. You'll own the car outright (like paying in cash) plus you'd be covered by Section 75 protection. However, you'd need to check whether the car dealer accepts payment by credit card, as not all do.

    Unfortunately you usually won't know what credit limit you'll get before applying, and you should budget to pay the debt off before the 0% period ends, as the interest rate rockets after then. The longest cards typically offer up to 25 months at 0% – see our 0% spending cards guide for more information.
Loan application.
  • Personal loan – usually cheapest if you need to borrow and want to own the car outright

    This won't be at 0%, but may allow you to borrow more and over a longer period than you'd get on a credit card. Repayments will be structured for you to clear the debt at the end of the term, which is usually between one and five years.

    Using a loan to buy the car means you'll own it outright. See our Cheap loans guide for the best buys and full help.
  • Personal Contract Purchase (PCP) – can be good if you want a new car every few years, but often more expensive overall than a loan

    This is a popular way to get a new car, especially if you frequently change vehicle and want to pay for it monthly. It's basically a loan, though usually cheaper each month as you won't be paying off the full value of the car. You also won't own it at the end, unless you choose to.

    You'll pay a deposit and then monthly instalments over a set term. There's usually a mileage allowance, but provided you stick to that and don't damage the car, you can either return it and walk away at the end of the agreement, or pay what's known as a 'balloon payment' to own it.

    As the dealer will be making money from the finance deal, you may find it offers larger discounts or contributions to the deposit on new cars. For used cars, it may mean you can haggle more off the sale price. Always be careful and make sure to calculate the total cost you'll need to repay after all interest has been added. This will then show the 'true' value of the discount. See our full guide on cheap Personal Contract Purchase for more information.

  • Car leasing/Personal Contract Hire – low monthly rental payments, but you'll never own the car (nor have the option to)

    This is a way to get a brand new car for a monthly payment, though this is essentially a long-term rental, so you'll never own the car – nor have the option to buy it. Instead you'll pay an initial deposit followed by a monthly amount for the duration of the contract, which is usually over one to four years.

    As with PCP, you'll need to choose a mileage allowance (for example, 8,000 miles a year) and you're responsible for the car's upkeep. At the end of the agreement, you simply return the vehicle (though you could be charged if you've exceeded the mileage or damaged it). See our Cheap car leasing guide for full help.

Hire Purchase need-to-knows

If you think a Hire Purchase (HP) agreement is right for you, here are the need-to-knows to understand before you opt for one.

  • You don't need to pay for the whole car on the card. Just put some of the deposit, even as little as 1p, on a credit card, and you get powerful extra protection if something goes wrong down the line. This is because you're then covered by Section 75 laws.

    Provided that the total cost of the car you're buying is between £100 and £30,000, paying anything towards it by credit card means the card company (or finance company in some cases) is equally liable along with the dealer if things go wrong.

    However, this isn't always straightforward. Some car dealers don't accept credit cards and some may only allow you to pay a limited amount by card. So figure out how important this is, and ask your chosen dealer if it can accept cards before deciding how to pay.

    If you need to borrow to pay for the deposit, a 0% spending card is the cheapest way as, done right, there's no interest. For full help and top picks, see Best 0% spending cards.

  • When you select an HP car deal, your finance company – whether it's an online broker or accessed via the dealer – will then pay the seller the amount you've agreed on for the purchase price, less any deposit. 

    You'll then pay the finance company fixed monthly repayments over, usually, one to five years. Remember the finance company owns the car at this point. 

    Once all repayments have been made, you pay a final fee – referred to as the 'option to purchase' fee – to own the car outright. This covers the cost of transferring ownership to you and is typically about £100. It should be mentioned in the Hire Purchase agreement that you sign at the start – but if you can't find it, make sure you ask the dealer or finance company how much the fee is.

    Let's take an example of how much you'd pay in total…

    Say you're buying a car priced at £14,000:

    • You pay a 10% deposit of £1,400, leaving £12,600 left to pay.
    • You borrow £12,600 over three years.
    • You get a 5% APR deal, meaning payments would be £378 a month (£13,608 for the three years).
    • After three years you can take ownership of the vehicle, paying a transfer fee of £100.
    • So in total you'd pay £15,108.

    Remember! The car is owned by the finance company until the final payment and 'option to purchase' fee have been paid. Until then, you have no legal right to sell the car (though the finance company may let you if you ask, and use the proceeds to fully settle the finance agreement).

  • The finance company remains the legal owner during the Hire Purchase agreement, but you're recorded as the registered keeper – so you'll be responsible for any parking or speeding tickets, servicing costs and insuring the car. So you'll need to factor these costs in on top of your monthly payment. 

    Dealers will sometimes throw in service and maintenance packages, warranties and insurance, though always check these are free, or represent good value. See our Cheap car insurance guide for full help in cutting insurance costs.

  • When you apply, the lender will normally do a credit check to decide whether to lend to you, and this check will appear on your credit file as an application for credit.

    Credit checks for HP aren't usually as stringent as those for personal loans. This is because all car finance is secured on the car – if you don't pay, the lender can just come and repossess the car, whereas for loans there's no security, so it'd need to chase you through the courts.

    If you find you're not able to make repayments, always contact the lender – ideally before the next payment is due. If it knows you're struggling, it should help you by offering an alternative and affordable repayment plan.

    If you miss a payment, it's likely the lender will contact you to see what's wrong. If you keep missing payments, it'll mark you as in 'default'. Once this happens, it'll usually take back the car quite quickly, as to leave the Hire Purchase vehicle with you while it chases payments risks the car's value depreciating even more.

    As well as the company taking the car, if you fail to keep up repayments, you'd get a default mark on your credit file, which could affect your ability to get a mortgage or other credit. See our Credit scores guide for more info, and jump to our section on what to do if you're struggling to make your repayments for tips on navigating this situation.

  • There's a little-known clause in the Consumer Credit Act that allows you to get out of a Hire Purchase agreement early, known as a voluntary termination. Provided you've repaid at least half the total amount owed, you can terminate the agreement and return the car to the finance company.

    This is a handy clause in an HP agreement if you find:

    • You no longer need the car.
    • You want to cut costs.
    • You can't afford repayments.
    • You can get a similar car that would cost less than the total of your remaining payments.

    Should you go down this route, the car should be in good condition when you hand it back. If not, you'll have to pay for any outstanding repair work that needs doing.

    If you're not yet halfway through the payments, you'll need to pay the amount outstanding to reach halfway before you can get out of the agreement. If you've paid over 50% of the total cost, you won't get that amount refunded.

    Bear in mind too that a voluntary termination will show on your credit report, but it shouldn't have a negative impact on it, while missing payments almost certainly would.

    Important! If you decide to end the agreement early, make sure to get everything in writing and keep a copy so nobody can claim you have defaulted on your payments.

Where can I get an HP car deal?

There are two main options here. The most common is to get the finance through the dealership you're buying from. However, before you start, it's worth getting quotes from online brokers first, so you can compare with the dealer's offer. It's also worth taking a copy of the cheapest quote along so you can ask it to match or beat it.

Important. Beware of 'representative' APR – you could get a MUCH higher rate. Only 51% of successful applicants have to get the advertised interest rate, so up to 49% could get a more expensive Hire Purchase (HP) car deal than the one they applied for (if they're accepted at all). So you could apply for 4.4%, be accepted, and be given a 17.9% APR. Unfortunately the only way to know the rate you'll get is to apply, though always use the lender's eligibility calculator to see your acceptance odds first.

Online lenders & brokers

A handful of lenders and brokers provide HP car deals. These are handy to get an idea of the prices and repayments you might be looking at on your ideal car. Brokers supply the finance through a variety of lenders and offer a wide range of deals, including those for buyers with a tarnished credit history.

Some brokers will also be able to source vehicles for you, as well as finance. But you can still get your car from any dealer in the UK, and just use the broker for the loan. It will send funds to the dealer after you've signed the Hire Purchase agreement. 

Top-pick online HP finance providers and brokers

Provider Rep APR interest (1-5 years or stated)
Cheapest existing-customer deals. If you've had its current account for at least three months.
Halifax

£3,000 to £4,999: 11.3%

£5,000 to £6,999: 10.5%

£7,000 to £60,000: 6.2%

Bank of Scotland / Lloyds Bank

£3,000 to £4,999: 11.3%

£5,000 to £6,999: 10.5%

£7,000 to £60,000: 6.3%

Top 'open to all' deals. All providers here have eligibility calculators allowing you to check your acceptance odds before applying.
Motiv* Scans 11 lenders to give you a personalised price. It may feature some high APR lenders. 
Magnitude Finance* 8.9% (1 to 5 years)
Carmoola 14.8% (app only, used cars only) 

Dealer finance

Sometimes known as forecourt finance, or just car finance, it's offered by almost every dealership in the UK – and HP is one of the options they offer. Dealerships come in three main types: franchised (tied to one or more manufacturers, for example, BMW garages), independent (not tied), and car supermarkets. Sites such as Car Wow and Drive the deal are useful here, as they allow you to compare deals from car dealers nationally. This means you may find a much cheaper offer from a dealer 200 miles away from you (for example, it has stock to clear), which you may otherwise have missed.
  • Getting an HP car deal through a franchised dealership

    In a franchised dealership, finance deals are usually arranged through the car finance arm of a manufacturer – for example, Ford Credit, or Volvo Financial Services. It's definitely worth looking at what these dealerships can offer you on a finance deal, especially if you're buying a new car.

    If this is the case, it's not uncommon for the manufacturer to give £500-£2,000 to you as a deposit contribution, and also offer 0% finance. If you don't qualify for 0% finance, you'll usually get an advertised APR offer of about 5% – though this is representative, so if you have a poorer credit history, you may be offered a much higher rate.
  • Getting an HP deal through an independent dealership or car supermarket

    Many independent dealerships and car supermarkets get their finance from big banks' consumer arms. Black Horse (part of Lloyds) and Santander Consumer Finance, for example, supply finance deals to non-franchised dealerships.

    These finance providers aren't tied to manufacturers, and therefore can't offer the heavily subsidised 0% finance or deposit contributions that the car companies' finance arms can. If you go to one of these dealerships, expect a representative APR of somewhere between 5% and 10% – or more if you've a bad credit record.

    It's a competitive market out there – check what's available online and from dealers, and ask yourself what you can really afford. It's vital you can afford the repayments before you commit. With all these types of finance, if your application is accepted, finance is sent directly to the dealer.

What are the advantages and disadvantages of Hire Purchase?

HP finance can certainly be an attractive option when buying a car. However, like any financial arrangement, it comes with its own set of pros and cons:

Advantages of Hire Purchase

  • You get to own the car. Arguably the biggest benefit of Hire Purchase is that you get to own the car outright once you've made the necessary payments. This is unlike leasing a car where you have to hand it back. 
  • You spread the cost of buying a car. HP allows you to spread the cost of buying a car over a fixed period, rather than having to pay a large sum upfront.
  • There are no mileage restrictions. Unlike leasing agreements, which often come with a mileage limit, Hire Purchase deals typically allow you to drive the vehicle as much as you want without incurring extra charges.
  • It can be more accessible. HP finance may be easier to access than some other forms of finance (such as personal loans) if you have poor credit, as the vehicle acts as security on the loan.

Disadvantages of Hire Purchase

  • It can cost a lot. A Hire Purchase agreement costs more than buying a car upfront overall due to the interest. Plus, the monthly payments involved are often higher than car finance options such as leasing or PCP, though there isn't a balloon payment involved to purchase the car as there is with PCP. 
  • You become the owner of the car only after the final payment. Although you get to keep and use the car during the repayment period, you don't technically own it until you've made the final payment. Not only could the lender repossess the vehicle if you default on your repayments, you're also unable to sell or modify the car without permission until you own it.
  • You take on the car's depreciation. Once the car is yours, so is the depreciation. This will eat into any money made down the line from a sale. 
  • There's limited flexibility. It can be challenging to change cars before the end of the HP agreement's term without incurring significant fees or penalties. This lack of flexibility may not suit your needs.

Ultimately, whether Hire Purchase is the right option for you depends on your unique circumstances, including your budget, creditworthiness, and how important vehicle ownership is to you. Carefully consider the terms and conditions of any finance agreement before committing to ensure it aligns with your needs and financial situation.

What details and documents do I need to provide when applying for HP finance?

Two driving licences and other associated documentation, with one reading "Driver and Vehicle Standards Agency".

Although the exact requirements depend on the lender, you'll likely need to provide the following details and documents when applying for HP finance:

  • Your personal information. For example, your full name, date of birth and contact details, such as your phone number and email address.
  • Your employment and income details. Most lenders will ask for your employer's name and contact information – plus recent payslips or proof of income (such as bank statements and tax returns if you're self-employed).
  • Your address details. Information you'll likely need to provide includes how long you've lived at your current address and previous address details if you've moved recently.
  • Some financial information. For instance, info on existing financial commitments (such as credit cards and mortgage), bank statements displaying your income and outgoings, and details of any other assets or liabilities. You almost certainly will be credit-checked too. Find out more about this and how to check your score for free with MSE's guide to checking your credit report.
  • Your vehicle information. This includes the make, model and registration number of the car you want to hire and purchase, the price (and any optional extras), and the details of the intended deposit.
  • Your ID documents. Lenders will ask for proof of identity (such as a passport) and proof of address (such as bills or a council tax statement). 
  • Your driving licence. Naturally, you'll need to show a copy of your driving licence. See if yours is still valid using our Driving licence renewal guide.
  • Your bank details. These are required to set up the Direct Debit for your monthly repayments.
  • Your insurance details. You may need to show proof of car insurance cover. Find out how to get cheap insurance by reading our full guide.

Make sure to check your finance provider's exact requirements, as it may have extra criteria or require different documentation.

What to do if you're struggling with your HP payments

Finding it hard to make your HP repayments? Here we walk you through some of your options:

  • Contact the lender ASAP. Get in touch with your finance provider as soon as you think that making your repayments could be difficult. The earlier you do so, the more ways it may be able to help you and the quicker you can get back on track financially. 
  • Discuss your options with your finance provider. Some lenders may be open to restructuring an HP agreement, for example by extending the loan term, tweaking monthly repayments, or deferring instalments for a short while – called a payment holiday. Do note that these options may increase the overall cost of your loan and negatively affect your credit score. However, these outcomes are still likely better than defaulting on your agreement.
  • Hand in your car. As discussed above, you're able to return the car before the term is over via a voluntary termination. That said, if you've paid less than half of the total cost of the car, then it may be worth keeping the vehicle for the time being (if possible). This is because you need to have paid 50% of the agreed instalments before you can terminate the contract, and you'd have no car.
  • Part exchange the vehicle. You may instead be able to part exchange your car for a more affordable model. The cheaper your HP car is, the lower your monthly repayments will be.

    To do this, however, you'd need to ask your lender for an early settlement figure, which you'd have to pay to clear the borrowing and become the car's owner. This figure includes any remaining scheduled payments and potentially other fees – though the amount chargeable is capped by law.

    If your car is worth more than the cost to clear the loan – in other words, you have positive equity – then you could potentially use this as a deposit on a new, cheaper HP deal. Alternatively, you could try to sell the vehicle privately for a profit yourself, though this would leave you in the red until you do so.

    If you're in negative equity with the car – meaning it's worth less than the cost of clearing the HP finance – then it will cost you to do a part exchange, so it's unlikely to be the best course of action.
  • Review your insurance cover. See if you have insurance cover in place that may help. Many HP agreements include payment protection insurance, or there's gap insurance – these may help you in certain situations (such as if you write off a car). You can learn more about gap insurance in our FAQ section.
  • Get free debt help. If your debt issues extend beyond your HP deal, getting help is vital. From budgeting better to learning about any benefits you're entitled to, seeking support can help you turn your fortunes around. Learn more, including how to get free debt help, in our full Debt help guide.
  • Understand repossession procedures. A lender can only repossess your vehicle without a court order if less than a third of the agreement has been paid. That said, make sure you're aware of the terms and conditions included in your HP agreement concerning repossession. This can help you deal with the situation should it come to this. 

Remember, communication is crucial. Letting your lender know about your situation and working together to get through it is the best approach. Ignoring the issue can lead to things snowballing, so it's vital to face financial challenges head-on.

Find more guides and tools to navigate debt in the Debt help section of our site. 

Also see: Balance transfer credit cards | Cut existing loan costs | Mental health & debt

Want to complain about your HP finance provider?

If you think your car finance agreement was mis-sold to you, see our dedicated guide on how to reclaim car finance.

Alternatively, you can also complain if your HP finance provider has taken the wrong amount in payment, treated you unfairly or its service has been atrocious. It's always worth trying to call the lender first to see if it can help, but if not...

Hire Purchase FAQs

  • What if there's a problem with the car?

    If you buy a car using Hire Purchase (HP) and realise it's faulty, it's worth returning it and asking the dealer to fix it. If the dealer refuses or tries to charge you, go to your HP provider.

    Your HP finance provider legally owns the car until the loan is repaid, so your contract is with it – not the dealer that set up the agreement. This means your HP provider is legally responsible for any problems with the car.

    Buying on HP means you'll specifically need to quote something called the Supply of Goods (Implied Terms) Act. This states that goods must meet their description and be of a satisfactory quality and fit for purpose. You can quote this legislation when making a claim for the faulty car against your HP provider.

    So, by all means try to resolve the problem with the dealer, but if this doesn't work, try the HP provider, which is the company you're making repayments to. If you're still not happy, take your complaint to the free Financial Ombudsman Service.

  • What is gap insurance, and do I need it?

    If you have a crash, or your car's stolen, your insurer will usually only pay out the amount the car is worth at that time. However, gap insurance pays out an amount above this, to get you back to the original sale price of the car, to the amount you have outstanding on finance (which can, at times, be greater than the car's worth), or to the amount it would cost to buy the car new now.

    However, not only is gap insurance not mandatory, the insurance regulator the Financial Conduct Authority (FCA) is currently investigating gap insurers, because of concerns that their policies aren't providing fair value to some consumers. The FCA has also told insurers to stop selling these policies by the end of March 2024.

    We have a guide to gap insurance, but have removed the products in light of this, and will update the page once the FCA investigation is finished.

MSE weekly email

FREE weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today – it's spam-free!

Spotted out of date info/broken links? Email: brokenlink@moneysavingexpert.com