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- Hire Purchase
Hire Purchase (HP)
Hire purchase is the traditional method of car finance. It is similar to a bank loan in that you pay fixed monthly payment for a set period of time. This is normally arranged through dealerships. You pay an initial deposit for the loan. There may be no deposit required in certain circumstances and some dealers accept your old car as part exchange for the deposit. The rest of the payment and the interest payments is fixed at a monthly, or weekly, rate for a period of typically two to five years. This monthly loan repayment is determined by the amount of deposit paid, the period of the contract and the sale price of the car.
When you arrange car finance using Hire purchase, you don't actually own the car until you have made full payment for the car. This means that if you do not keep up payments your car can be repossessed. You can't sell the car either as it doesn't belong to you, but the finance company will give you a settlement amount which you can pay to own the car outright or enter into a new agreement.
If you decide that you do not want to keep the car and have paid at least 50% of the car loan, you can return it to the dealership without paying anything else.
With some agreements you can settle up the outstanding amount before the end period and get a rebate on the remaining interest.
When taking out a Hire purchase car loan be careful that you are not paying too much for your car. Lower loan payments over a long period will cost you more interest. Check how much your car will cost you in the long run.