HP Car Finance
For Bad Credit

What is Hire Purchase finance?

Hire Purchase (HP) finance is a car financing option that lets you spread the cost of a vehicle over fixed monthly instalments. With an HP agreement, you pay an initial deposit and then make monthly payments over an agreed term. At the end of the agreement, after paying the final purchase fee, you become the legal owner of the car.

For example, you might pay a £2,000 deposit upfront and then £250 per month for three years. This structure allows you to manage your budget while working towards full car ownership without needing a large lump sum at the start.

How does HP finance work?

Hire Purchase (HP) finance is a simple process that helps you spread the cost of a car over time while working towards ownership. Here’s how it works:

1. Pay an initial deposit

You start by paying an initial deposit, which is usually a percentage of the car’s total cost. A higher deposit reduces the amount borrowed and lowers your monthly repayments. For example, if you put down a £3,000 deposit on a £15,000 car, you’ll need to repay the remaining £12,000 over the agreed term.

2. Make monthly repayments

You’ll then make fixed monthly repayments that cover both the borrowed amount and the interest (the cost of credit). Repayment terms typically range from one to five years, allowing you to choose a timeframe that suits your budget. For instance, you might pay £250 per month for four years, with the total cost depending on the interest rate agreed with the finance company.

3. Ownership at the end of the contract

At the end of the contract, you’ll have the option to pay the Option to Purchase fee, a small amount that finalises your ownership of the car. For example, paying a £150 fee after completing your monthly repayments would make you the car’s legal owner. If you choose not to pay this fee, the finance company retains ownership of the vehicle.

How to calculate your Hire Purchase (HP)

If you have a poor credit score, calculating your Hire Purchase (HP) costs accurately is crucial. Here’s how each factor affects your agreement:

1. The price of the car: Choose a car within your budget to keep repayments manageable. With bad credit, lenders may limit how much you can borrow, so focus on practical options.
2. Your deposit: A larger deposit not only lowers the amount you borrow but also improves your chances of approval. Trading in your old car can help increase your deposit and reduce monthly repayments.
3. Length of finance agreement: Opting for a longer term reduces your monthly payments, which can be helpful if your budget is tight. However, it increases the overall cost due to higher interest, so balance affordability with total expenses.
4. Interest rates: Bad credit often results in higher APR (Annual Percentage Rate), making it essential to compare lenders who specialise in bad credit finance. Securing the lowest rate possible helps minimise overall costs.

Comparing HP with other finance options

Can I get HP car finance with a bad credit?

Yes, HP car finance is an option for those with bad credit. As a secured loan, the lender owns the car until the final repayment, reducing their risk and improving your chances of approval. While a lower credit score may result in higher interest rates, making timely payments can help improve your credit over time. Many borrowers refinance halfway through their agreement to secure better terms, including lower interest rates. By managing repayments responsibly, HP finance can help you get the car you need while working towards a stronger credit profile.

Is HP car financing suitable for me if I have a bad credit score?

HP car financing can be a practical option for people with bad credit, as it lets you spread the cost of a vehicle over time and work towards ownership. It’s ideal for those who need fixed monthly payments and a clear path to owning their car at the end of the agreement.

Before applying, assess your financial situation. Ensure you can afford the initial deposit and monthly repayments without stretching your budget. Keep in mind the total cost of the agreement, including interest and the Option to Purchase fee, to confirm it aligns with your financial goals.

While HP is a solid choice for ownership, it offers less flexibility than options like Personal Contract Purchase (PCP), which allows you to return the car. If your priority is owning the car outright, HP could be the right fit.

Will my monthly repayments be higher if I have bad credit?

Yes, having bad credit can result in higher monthly repayments. Lenders often charge higher interest rates to offset the increased risk, which raises the overall cost of your Hire Purchase agreement. To reduce monthly payments, consider increasing your deposit or choosing a car with a lower total cost.

Getting a car on hire purchase with bad credit

If you have a poor credit score, getting a car loan can be difficult, but Hire Purchase (HP) might be a good alternative. HP is a type of car finance where the lender owns the vehicle until you finish your repayments. This lowers the lender’s risk, making it more accessible for people with bad credit.

With HP, payments are fixed, helping you budget. At the end of the agreement, you pay a small Option to Purchase Fee to own the car. Keeping up with repayments can also improve your credit profile, making future borrowing easier. Even if you’ve been declined for other loans, specialist lenders may still approve you for HP.

Advantages of Hire Purchase

Hire Purchase (HP) can be an accessible car financing option for those with a poor credit score. Key benefits include:

• Flexible repayment terms: Spread the cost over a timeframe that suits your financial situation, with terms typically ranging from 12 to 60 months.
• Fixed interest rates: Monthly repayments stay consistent throughout the agreement, helping you manage your budget without surprises.
• Credit score improvement: Making regular, on-time payments shows lenders you’re reliable, which can gradually improve your credit score.
• Low upfront costs: Instead of paying the full price upfront, you only need to provide a deposit, making it easier to get approved.
• Path to ownership: Once you complete the repayments and pay the Option to Purchase fee, the car is yours, providing long-term value and stability.

Disadvantages of Hire Purchase

Hire Purchase (HP) can be a practical option for financing a car, but it’s important to understand the potential challenges, especially if you have a poor credit score. Key drawbacks include:

• Higher interest rates: With bad credit, you may face higher interest rates, increasing the total cost of the agreement.
• Monthly payment pressure: Regular payments can be a challenge if your finances are already stretched, so careful budgeting is essential.
• Car ownership delays: You won’t legally own the car until the final payment, limiting your ability to sell or modify it during the agreement.
• Credit risks from missed payments: Missing payments can worsen your credit score and lead to the car being repossessed by the lender, making it harder to secure finance in the future.
• Limited flexibility: Unlike some other finance options, HP doesn’t allow you to easily return the car before completing the term.

Things to consider when applying for Hire Purchase car finance

If you have a poor credit score, it’s essential to consider the following factors before committing to a Hire Purchase (HP) agreement:

• Initial deposit: A larger deposit not only lowers your monthly payments but also improves your chances of approval. Trading in your old car directly increases the deposit amount you can offer.
• APR for bad credit: Lenders often charge higher interest rates for those with bad credit, increasing the total cost. Compare quotes from multiple lenders and focus on those that provide competitive terms for bad credit borrowers.
• Repayment plan: Use a finance calculator to balance deposit size and loan term. A longer term reduces monthly payments but will increase the overall cost.
• Ownership restrictions: You become the legal owner only after making the final payment, which includes the Option to Purchase fee. Plan for these conditions and ensure you can maintain regular payments throughout the term.