The Ultimate Guide to HP Car Finance

Summary

• Hire Purchase (HP) is a finance agreement where you hire a car with the primary goal of owning it. You make fixed monthly payments and, after a final fee, the car becomes yours.
• HP is ideal for buyers who want definite ownership and prefer fixed, predictable costs. Monthly payments are typically higher than PCP because you're paying off the car's full value.
• While the finance company legally owns the car during the term, you are the registered keeper and responsible for all insurance, tax, and maintenance costs.

Hire Purchase (HP) is one of the most popular and straightforward ways to finance a car in the UK. If your goal is to own your vehicle at the end of your finance deal, HP offers a clear and structured path to get you there. It allows you to spread the cost of a new or used car over a fixed period, making your next purchase much more manageable.

This ultimate guide will walk you through everything you need to know about HP car finance, from how it works to how it compares with other options, ensuring you have all the information to decide if it's the right choice for you.

What is Hire Purchase? A Quick Summary

Hire Purchase is a finance agreement where you hire a car from a lender for a set period, making fixed monthly payments. Once all payments are complete, you pay a small final fee to take full ownership of the car.

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How Does HP Car Finance Work? A Step-by-Step Breakdown

The HP process is designed to be simple. It breaks down the cost of a car into manageable chunks. Here’s how it works from start to finish:

1. Choose Your Car: Find the new or used car you want to buy from a dealership. The price you agree on will form the basis of the finance agreement.
2. Pay the Deposit: You'll typically pay an upfront deposit, which is usually around 10% of the car's price. However, some lenders offer no-deposit deals. A larger deposit will reduce the amount you need to borrow and lower your monthly payments.
3. Agree on the Term: You and the lender will agree on the length of the contract, usually between 12 and 60 months (1 to 5 years). Your monthly payments are calculated by taking the remaining car value (after the deposit) plus interest and dividing it by the number of months in your term.
4. Make Fixed Monthly Payments: For the entire length of the agreement, you will make the same fixed monthly payment. This makes budgeting easy as you always know exactly how much is due.
5. Finalising the Agreement: After you've made your final monthly payment, you'll pay a small, one-off ‘Option to Purchase Fee’. This fee is often just £1 but can be up to £200. It's the final step that transfers legal ownership of the car from the finance company to you.

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The Pros and Cons of HP Car Finance

Like any financial product, HP has both advantages and disadvantages. Understanding these will help you determine if it aligns with your needs.

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HP vs PCP: Which Finance Option is Right for You?

Hire Purchase (HP) and Personal Contract Purchase (PCP) are the two most common car finance options, but they work differently, especially at the end of the contract.

• HP is for people who want to own their car.
• PCP is for people who want flexibility and lower monthly payments, with the option to own, return, or trade in the car at the end.

Here’s a direct comparison:

For a more detailed look at PCP, check out our PCP Finance Ultimate Guide.

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The Application Process: What You'll Need

Applying for HP finance is a standard process, whether you do it at a dealership or through an online broker.

Who Offers HP Finance?

• Car dealerships
• Online car finance brokers
• Banks and building societies

What Information Will You Need to Provide?

Lenders need to verify your identity and assess your ability to repay the loan. Be prepared to provide:

• Personal Details: Full name, date of birth, and marital status.
• Address History: Your address details for the last 3-5 years.
• Employment Details: Your employer's name, your job title, and how long you've worked there.
• Income & Expenditure: Proof of your monthly income and an overview of your main outgoings (rent/mortgage, other credit commitments).
• Bank Details: Your bank account number and sort code for setting up the direct debit.
• Identification: A copy of your UK driving licence.

Your credit score plays a significant role in determining your eligibility and the interest rate (APR) you are offered. A higher credit score generally leads to better finance deals.

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Your Rights and Responsibilities with HP Finance

During an HP agreement, you have certain legal rights and responsibilities.

Your Responsibilities

Although the finance company is the legal owner until the end, you are the registered keeper. This means you are responsible for:

• Insurance: You must have fully comprehensive insurance for the entire duration of the agreement.
• Servicing and Maintenance: You must keep the car in good condition and follow the manufacturer's recommended service schedule.
• MOT and Tax: You are responsible for ensuring the car has a valid MOT (if over three years old) and is taxed. You can learn more with our guide on how to check your car's road tax.

Your Rights

The Consumer Credit Act 1974 gives you important protections:

• The Right to Voluntary Termination: You have the legal right to end the agreement early. To do this, you must have paid at least 50% of the Total Amount Payable (including interest and fees). If you haven't reached the 50% mark, you can pay the difference to terminate the contract. The car must be returned in good condition.
• The Right to Settle Early: You can ask for an 'early settlement figure' at any time. This is the amount you would need to pay to clear the finance and own the car outright before the end of the term. This figure will include a rebate of some of the future interest.
• Protection from Repossession: If you have paid one-third or more of the total amount payable, the lender cannot repossess your vehicle without a court order.

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Frequently Asked Questions about HP Finance

Can I sell a car on HP finance?

No, you cannot sell the car without the lender's permission because you are not the legal owner. To sell it, you must first obtain an early settlement figure and pay off the remaining finance. Our guide to selling a car on finance explains this in more detail.

Can I part-exchange a car on HP?

Yes, this is common. A dealer will get a settlement figure from your current finance company and, if the car's trade-in value is higher, the difference (equity) can be used as a deposit on your next car. Find out more in our part-exchange guide.

Can I get HP finance with bad credit?

It can be more challenging, but it is possible. Because HP is a secured loan, some specialist lenders are willing to offer deals to those with a poor credit history, though the interest rates will likely be higher.

Are there any hidden costs with HP?

HP is generally transparent. The costs are the deposit, the fixed monthly payments, and the Option to Purchase Fee. You may face extra charges if you miss a payment or if you damage the car and voluntarily terminate the agreement. Always read the contract's terms and conditions carefully.

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