Hire Purchase Finance

Hire purchase (HP) is a type of car finance where you pay for the full value of the car, unlike PCP where you pay for the loss in value.

HP secures a new or used car with an initial deposit and monthly payments with a loan secured against the car. You own the car once you have fully paid off the hire purchase agreement.

It’s a pretty simple system and one of the most popular types of car finance. Here’s how hire purchase works:

1. At the start, you put down a deposit, usually 10% of the car’s value (but this can be more or less)
2. Next, you pay monthly to cover the rest of the car’s value, typically over three to five years
   
   1. You also pay interest as HP finance is a loan, but this may not always be the case.
3. At the end, you have an option to own fee which may vary between £100-£200. Pay this and you own the car

The lender takes the full value of the car and works from there. Your deposit is usually around 10% of the car’s value (but it can be more or less), and then the monthly repayments cover the rest of the car’s value. Interest is also added to your monthly payments.

Shorter loan terms = higher monthly payments but less interest.

Longer loan terms = lower monthly payments but more interest.

There is no mileage limit with hire purchase because you’re paying for the value of the car. So it doesn’t matter how many miles you do during your HP agreement.

There is no balloon payment with hire purchase. Instead, there is a minimal option to own fee (typically around £100-£200.) Pay this and you own the car.

Hire purchase car finance can be used for short term finance but is often better suited to those looking for a long-term agreement. This is because the cost of the car and any interest incurred is spread over your loan term.

All hire purchase agreements are secured against the car. This means that the car is collateral in case anything happens.

There are plenty of advantages of hire purchase agreements. The main reason you would choose HP finance is if you want to keep the car after your term is up.

Here are the main benefits of hire purchase finance:

Yes, if you pay the small option to buy fee.

Yes, in most cases you can get out of a hire purchase agreement early. And it’s a relatively easy process too.

If you can no longer afford the payments or no longer need the car, you can end your hire purchase agreement early.

Bear in mind that you will have to pay all monthly instalments up to the date you end your agreement.

There are two ways you can cancel your hire purchase agreement early:

1. Ending hire purchase through early settlement:
   
   1. If you have paid less than half of the loan, you will have to pay the difference before the agreement is cancelled
   2. If you have paid more than half of the loan, you typically won’t have to pay anything more
2. Ending hire purchase through the voluntary cancellation clause
   
   1. You usually won’t have to pay off any interest but will have to pay an early termination fee

The first option is known as hire purchase early settlement. The second is known as voluntary cancellation.

Terms and conditions may vary depending on your specific lender so make sure to read your contract for information on both.

You can only sell your hire purchase car once you have paid off the loan. If you want to sell it early, you will first have to repay the full loan by asking for an early settlement. Once this is paid, you are then the legal owner of the car and can sell it.

Much like with selling, you aren’t able to trade it in until you have paid it off. The lender is the car's legal owner until you’ve settled your hire purchase loan in full.

We always have an amazing range of hire purchase deals available. The specialists at your local Pentagon dealership are fully SAF-approved so you know you’re in safe hands.

Our accredited panel of lenders offer:

• Locked interest rates
• Fixed monthly payments
• Low & no deposit offers
• Quick & easy application process

Discover more about hire purchase car finance, explore our latest deals or book a test drive by getting in touch with your local Pentagon Group dealership. Our friendly team of SAF-approved specialists are here to help you secure an amazing deal on your next car.