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.
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:
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.
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.
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.
This helps you get a more accurate finance estimate
Won't affect your credit score
We are a credit broker not a lenderThese estimates are subject to credit checks, and may change if you do apply for finance.
Loan amount | £7,500.00 |
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Length of Loan | 60 months |
Monthly payment | £0 |
Interest rate | 14.9% APR |
Optional final payment | £0 |
Amount of interest | £0 |
Total payment | £0 |
If you have a poor credit score, calculating your Hire Purchase (HP) costs accurately is crucial. Here’s how each factor affects your agreement:
Feature | Hire Purchase (HP) | Personal Contract Purchase (PCP) |
Ownership | Ownership is automatically transferred once all payments are made. | Ownership only transfers if the balloon payment is made. Otherwise, you can return the car or use it for part exchange. |
Monthly payments | Higher monthly payments as you pay for the car's full cost over the term. | Lower monthly payments as you only pay for the car's depreciation during the term. |
Deposit | Typically requires a larger deposit amount upfront. | Requires a smaller initial deposit, making it more accessible. |
Final payment | No final balloon payment is required; the loan is fully repaid by the end of the term. | An optional final payment (balloon payment) is required to own the car outright. |
Flexibility | Less flexible; the car is yours once the term ends. | Highly flexible; choose to return the car, buy it, or trade it in at the end of the term. |
Mileage restrictions | No mileage limits apply. | Mileage limits are imposed, with excess mileage charges if exceeded. |
Best for | Those who want to own the car outright and avoid restrictions. | Those looking for lower monthly repayments and flexibility at the end term. |
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.
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.
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.
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.
To apply for car finance you need to | Requirements | Car must meet the following criteria: |
Your name | Be aged 18-75 years old |
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Date of birth and nationality | Requires initial deposit |
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Your recent address history | Receive a monthly income of £1,000 or above |
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Tour employment status | ||
Your income and expenses |
Hire Purchase (HP) can be an accessible car financing option for those with a poor credit score. Key benefits include:
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:
If you have a poor credit score, it’s essential to consider the following factors before committing to a Hire Purchase (HP) agreement:
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