With Hire Purchase, the finance company owns the car until your final payment. If you miss payments, they have the legal right to repossess the vehicle - unless you have paid more than one third of the total purchase price, at which point they need a court order.
Quick answer
Hire Purchase works by paying a deposit, making fixed monthly payments over the agreed term, and paying a small final fee to own the car. Unlike PCP, there is no large balloon payment at the end and no decision about whether to buy or return. HP is a regulated consumer credit product under the Consumer Credit Act 1974, giving you specific protections including voluntary termination rights once 50% of the total amount is paid.
HP vs PCP: The Structural Difference
Both HP and PCP are point-of-sale financing products arranged through dealers or brokers. The structural difference:
- HP: Your monthly payments pay down the whole car cost (plus interest). At the end, you own the car. Monthly payments are higher than equivalent PCP deals.
- PCP: Monthly payments only cover part of the car's value - the "Guaranteed Future Value" (GFV) portion is deferred to the end as a balloon payment. This makes monthly payments lower, but creates a large decision at the end of the term.
The Section 75 Protection Connection
If you pay your HP deposit on a credit card (for amounts over £100), Section 75 of the Consumer Credit Act makes the card provider jointly liable for any misrepresentation or breach of contract. This can be valuable protection if the dealer becomes insolvent before you take possession of the car.
What Happens to the HP Agreement If the Car Is Written Off?
If the car is written off, your insurer pays the car's current market value. Your outstanding HP finance must still be repaid. If a settlement figure exceeds the insurance payout, you face a shortfall. GAP insurance protects against this. Check whether GAP insurance is included in your HP deal or whether you need to arrange it separately.
Frequently Asked Questions
With HP, you pay an initial deposit (typically 10% or more of the vehicle price), then make equal monthly instalments over an agreed term (usually 1 to 5 years). At the end of the agreement, you pay a small option to purchase fee (often £1 to £200) and the car legally becomes yours. There is no large final balloon payment as with PCP, and no choice to hand the car back. At the end of the term, you own the car outright.
The Consumer Credit Act 1974 gives HP customers the right to voluntarily terminate the agreement once they have paid 50% of the total amount payable (the total includes all monthly payments, the option fee, and any admin charges - not just the cash price of the car). If you exercise this right, you return the car with no further payment required, provided it is in a condition that reflects reasonable wear for its use. You may owe money to reach the 50% threshold, or have credit if you have overpaid.
Not without settling the finance first. As the car legally belongs to the HP finance company until the final payment, selling it privately without settling the finance is fraudulent and may constitute a criminal offence. If you want to sell, get a settlement figure from the finance company and settle it from the sale proceeds. Any surplus after settling goes to you; any shortfall means you owe the difference.
HP is simpler and results in definite ownership at the end of the term. PCP offers lower monthly payments but requires a large balloon payment to own the car at the end. HP monthly payments are higher than PCP (for the same car/term) because there is no balloon deferral, but the total amount repayable can sometimes be lower. HP is a better match for buyers who are certain they want to keep the car and do not want the complexity of the PCP end-of-term decision. Read our PCP guide for a full comparison.
There is no legal minimum deposit for HP, and some lenders offer 0% deposit deals (particularly for higher-credit applicants). In practice, most HP agreements start with a 10% deposit. A larger deposit reduces the amount financed, reduces the monthly payment, and improves your equity position throughout the agreement - important if you want to change the car before the term ends without a shortfall.
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