Cheap 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.

• 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.

• 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.

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. 

• 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.

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.

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.