Hire Purchase (HP) finance is a financial agreement where lenders provide funds for purchasing a new or used car from a dealership or other car marketplace. You repay the car’s value, along with interest, over a specified period. Upon complete repayment of the finance, you gain full ownership of the car and can choose to keep it or sell it as desired.

How does it work?

Hire Purchase (HP) aims to facilitate car purchases by allowing you to acquire the vehicle with a deposit and then repay the remaining balance in equal monthly installments with added interest. This approach enables you to drive and ultimately own a car that might have been beyond your immediate purchasing ability. During the repayment period, the loan is secured against the car, meaning you’re listed as the keeper but only became the legal owner once the finance is fully settled. 

Different HP finance agreements offer various benefits based on your eligibility. You might qualify for an interest-free credit (0% APR) deal on a new car, although this could still be more expensive than paying interest on a used or older model.

Additionally, you may have the option to select between longer or shorter contract terms, altering the monthly repayment amount. While lower monthly payments can be more manageable, they may result in higher interest charges over time. If possible, you can also opt for a higher deposit to secure more favourable terms.

Hp vs PCP 

Hire Purchase (HP) finance enables you to spread the cost of your car over time through installments, similar to PCP. HP is typically chosen by drivers who intend to keep the car beyond the contract period, which can range from one to six years. 

Unlike PCP agreements, HP contracts usually do not impose mileage limits or charge for damage. HP finance is available for both new and used cars.

On the other hand, PCP financed is tailored for drivers who prefer to change their car every few years. With PCP, monthly payments are lower as they cover the depreciation rather then the full value of the car. At the end of the PCP contract, there is still an outstanding finance amount on the car. You can either return the car, trade it in for a new one, or settle the remaining finance o keep or sell the car. PCP finance is typically offered for new or nearly new cars.

HP agreements generally come with higher interest rates compared to PCP. However, the main advantage of HP is the guaranteed ownership once the finance is fully paid off, which appeals to drivers looking to keep a car for an extended period.