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What is Hire Purchase?

Hire Purchase (HP) is a type of car finance. It is like Conditional Sale car finance but is slightly different.

What is Hire Purchase?

Hire Purchase (HP) is a type of car finance. It is like Conditional Sale car finance but is slightly different. 

If you’re looking for a new car, you’ll know there are many ways to buy one. You’ll also encounter car finance terms like Personal Contract Purchase (PCP), Conditional Sale (CS), Personal Contract Hire (PCH), and Hire Purchase (HP).

Knowing the difference between the types of car finance can be tricky. So, what is Hire Purchase (HP) car finance? In this guide, we explain how Hire Purchase agreements work and how they differ from other car-buying methods.

What is HP finance?

Hire Purchase, also known as HP, allows you to borrow money to buy a new car. The finance company pays the dealership, and you’ll make monthly payments until the cost of the finance is paid off.

If you’re looking for a new car, you’ll know there are many ways to buy one. You’ll also encounter car finance terms like Personal Contract Purchase (PCP), Conditional Sale (CS), Personal Contract Hire (PCH), and Hire Purchase (HP).

Knowing the difference between the types of car finance can be tricky. So, what is Hire Purchase (HP) car finance? In this guide, we explain how Hire Purchase agreements work and how they differ from other car-buying methods.

What is HP finance?

Hire Purchase, also known as HP, allows you to borrow money to buy a new car. The finance company pays the dealership, and you’ll make monthly payments until the cost of the finance is paid off.

How does Hire Purchase work?

We don’t offer Hire Purchase agreements. We offer a Conditional Sale (CS) agreement which is very similar to Hire Purchase. However, it’s handy to know how HP works so you can decide which type of finance is best for you.

On a typical Hire Purchase agreement, you will pay an initial deposit which is usually 10% of the car’s value and then make monthly payments for the agreement duration (usually 1-5 years).

At the end of the HP agreement, you will own the car outright by paying the ‘option to purchase fee’. Your lender will tell you what this fee is before you sign the agreement. Upon paying this fee and after making all your monthly repayments, you will become the car’s legal owner.

Hire Purchase car finance diagram

How does Hire Purchase work?

We don’t offer Hire Purchase agreements. We offer a Conditional Sale (CS) agreement which is very similar to Hire Purchase. However, it’s handy to know how HP works so you can decide which type of finance is best for you.

Hire Purchase car finance diagram

On a typical Hire Purchase agreement, you will pay an initial deposit which is usually 10% of the car’s value and then make monthly payments for the agreement duration (usually 1-5 years).

At the end of the HP agreement, you will own the car outright by paying the ‘option to purchase fee’. Your lender will tell you what this fee is before you sign the agreement. Upon paying this fee and after making all your monthly repayments, you will become the car’s legal owner.

Step 1: find your next car

Find a car that meets your personal requirements from a dealership or a finance company. Hire Purchase deals are more common on new cars, but they are available for used vehicles, too.

Step 2: understand your agreement

On an HP deal, mileage restrictions don’t usually apply, but you must agree on how long you want the plan to last. Longer agreements may offer lower monthly payments, but you’ll likely end up paying more in the long run since you’ll be charged a fixed interest rate on anything borrowed.

Step 3: make a deposit

The deposit is usually 10% of the car’s value. The more money you put down as a deposit, the cheaper your monthly payments will be.

Step 4: receive your new car

Once you’ve paid the deposit, you’ll begin making monthly payments over the pre-agreed term. The money you borrow will be secured against the car, so missing payments may result in the finance provider or dealership repossessing the vehicle.

While making monthly instalments, you will be the car’s registered keeper rather than its legal owner. This means you will be required to ensure the vehicle is well-maintained, which includes paying for car insurance, road tax, and regular servicing and MOTs.

Additionally, as the finance company remains the vehicle owner until you make the final payment, you cannot modify, sell, or trade-in the car at any point during the agreement term. If you wish to do this, you’ll need to settle your agreement first.

Step 5: your last monthly payment

After making your last monthly payment, you will be asked to pay the option to purchase fee. This is usually a nominal fee, but it varies depending on your lender. Once you make this payment, you will be the car’s legal owner.

Other considerations with Hire Purchase car finance

  • Under the ‘Voluntary termination’ section of the Consumer Credit Act 1974, you can end Hire Purchase agreements early, but only if you have paid off 50% of the total amount payable. You also won’t be refunded the difference if you have paid over 50%.
  • On other types of car finance, like a Conditional Sale agreement, you will automatically become a car’s owner at the end of the contract without paying the additional purchase fee.
  • You will need to pass a credit check before being accepted for a Hire Purchase agreement to prove you can pay the fixed monthly payments.

What is an example of a Hire Purchase agreement?

Below is an example of what a Hire Purchase car finance agreement may look like in practice, if you decided to take out an agreement over 3 years (36 months).

HP example (3 years)
Car price £8,500
Deposit £500
APR 23.9%
Option to Purchase fee £10.00
Monthly payment £304.00
Total cost of credit £2,950.00

Your actual monthly payments will differ depending on the finance provider you choose, the agreement length, the size of your deposit, and the APR and option to purchase fee offered.

When taking out Hire Purchase finance, always ask to see the agreement breakdown, which should list all costs like the above. That way, you can be sure what you are paying and why the monthly payments are the amount they are.

Is Hire Purchase right for me?

To decide whether Hire Purchase is the most appropriate way for you to buy your next car, motorbike, or van, you should consider the following factors:

  • Whether you want to own the vehicle at the end of the agreement
  • If you want to modify the car. On a Hire Purchase deal, you can only do this once you own the vehicle outright
  • Whether you can afford to pay a deposit upfront to secure the vehicle (other types of car finance, such as Conditional Sale, may have smaller or no deposits)
  • If you want to commit to owning the vehicle at the end of the agreement.

Step 1: find your next car

Find a car that meets your personal requirements from a dealership or a finance company. Hire Purchase deals are more common on new cars, but they are available for used vehicles, too.

Step 2: understand your agreement

On an HP deal, mileage restrictions don’t usually apply, but you must agree on how long you want the plan to last. Longer agreements may offer lower monthly payments, but you’ll likely end up paying more in the long run since you’ll be charged a fixed interest rate on anything borrowed.

Step 3: make a deposit

The deposit is usually 10% of the car’s value. The more money you put down as a deposit, the cheaper your monthly payments will be.

Step 4: receive your new car

Once you’ve paid the deposit, you’ll begin making monthly payments over the pre-agreed term. The money you borrow will be secured against the car, so missing payments may result in the finance provider or dealership repossessing the vehicle.

While making monthly instalments, you will be the car’s registered keeper rather than its legal owner. This means you will be required to ensure the vehicle is well-maintained, which includes paying for car insurance, road tax, and regular servicing and MOTs.

Additionally, as the finance company remains the vehicle owner until you make the final payment, you cannot modify, sell, or trade-in the car at any point during the agreement term. If you wish to do this, you’ll need to settle your agreement first.

Step 5: your last monthly payment

After making your last monthly payment, you will be asked to pay the option to purchase fee. This is usually a nominal fee, but it varies depending on your lender. Once you make this payment, you will be the car’s legal owner.

Other considerations with Hire Purchase car finance

  • Under the ‘Voluntary termination’ section of the Consumer Credit Act 1974, you can end Hire Purchase agreements early, but only if you have paid off 50% of the total amount payable. You also won’t be refunded the difference if you have paid over 50%.
  • On other types of car finance, like a Conditional Sale agreement, you will automatically become a car’s owner at the end of the contract without paying the additional purchase fee.
  • You will need to pass a credit check before being accepted for a Hire Purchase agreement to prove you can pay the fixed monthly payments.

What is an example of a Hire Purchase agreement?

Below is an example of what a Hire Purchase car finance agreement may look like in practice, if you decided to take out an agreement over 3 years (36 months).

HP example (3 years)
Car price £8,500
Deposit £500
APR 23.9%
Option to Purchase fee £10.00
Monthly payment £304.00
Total cost of credit £2,950.00

Your actual monthly payments will differ depending on the finance provider you choose, the agreement length, the size of your deposit, and the APR and option to purchase fee offered.

When taking out Hire Purchase finance, always ask to see the agreement breakdown, which should list all costs like the above. That way, you can be sure what you are paying and why the monthly payments are the amount they are.

Is Hire Purchase right for me?

To decide whether Hire Purchase is the most appropriate way for you to buy your next car, motorbike, or van, you should consider the following factors:

  • Whether you want to own the vehicle at the end of the agreement
  • If you want to modify the car. On a Hire Purchase deal, you can only do this once you own the vehicle outright
  • Whether you can afford to pay a deposit upfront to secure the vehicle (other types of car finance, such as Conditional Sale, may have smaller or no deposits)
  • If you want to commit to owning the vehicle at the end of the agreement.

Pros of HP finance

  • You can choose to pay across 1-5 years
  • Fixed interest rates mean you know what you’ll be paying every month
  • No mileage restrictions
  • The ‘option to purchase fee’ is usually a nominal fee, allowing you to own the car at the end of the agreement.

Cons of HP finance

  • You won’t be the legal owner of the car until you make the final payment
  • You can’t sell or modify the vehicle during your agreement term
  • Monthly repayments may be higher than leasing or PCP deals
  • The lender can repossess the car if you don’t keep up the monthly payments.

What are the alternatives to HP car finance?

There are several alternatives to Hire Purchase car finance if you decide that it’s not the right option for you. Each has its benefits and drawbacks, so it’s important to consider what you need from a finance agreement before making an application.

Below is a table summarising the different car finance options available.

Hire Purchase Conditional Sale Personal Contract Purchase Personal Loan
Has affordability and credit checks ✔ ✔ ✔ ✔
Requires a deposit Subject to affordability Subject to affordability Subject to affordability X
Fixed monthly payments ✔ ✔ ✔ ✔
You own the car immediately X X X ✔
You can own the car at the end of the agreement ✔ ✔ ✔ ✔
Additional fee or payment needed to own the car ✔ X ✔ X
Excess mileage charges X X ✔ X
Secured against the vehicle ✔ ✔ ✔ X

What are the alternatives to HP car finance?

There are several alternatives to Hire Purchase car finance if you decide that it’s not the right option for you. Each has its benefits and drawbacks, so it’s important to consider what you need from a finance agreement before making an application.

Below are some tables summarising the different car finance options available.

Hire Purchase
Has affordability and credit checks ✔
Requires a deposit Subject to affordability
Fixed monthly payments ✔
You own the car immediately X
You can own the car at the end of the agreement ✔
Additional fee or payment needed to own the car ✔
Excess mileage charges X
Secured against the vehicle ✔
Conditional Sale
Has affordability and credit checks ✔
Requires a deposit Subject to affordability
Fixed monthly payments ✔
You own the car immediately X
You can own the car at the end of the agreement ✔
Additional fee or payment needed to own the car X
Excess mileage charges X
Secured against the vehicle ✔
Personal Contract Purchase
Has affordability and credit checks ✔
Requires a deposit Subject to affordability
Fixed monthly payments ✔
You own the car immediately X
You can own the car at the end of the agreement ✔
Additional fee or payment needed to own the car ✔
Excess mileage charges ✔
Secured against the vehicle ✔
Personal Loan
Has affordability and credit checks ✔
Requires a deposit X
Fixed monthly payments ✔
You own the car immediately ✔
You can own the car at the end of the agreement ✔
Additional fee or payment needed to own the car X
Excess mileage charges X
Secured against the vehicle X

Conditional Sale (CS)

Also known as CS car finance, Conditional Sale agreements help you spread the cost of a new vehicle and avoid paying a large deposit.

For the duration of the Conditional Sale agreement, you will be the vehicle’s registered keeper and responsible for maintaining and servicing the car. Our Conditional Sale agreements last between 3-5 years, and once you pay your final monthly payment, you will own the vehicle outright.

Personal Contract Purchase (PCP)

On a PCP plan, you make a deposit and pay monthly instalments over an agreed timeframe, usually between 2-4 years. At the end of the agreement, you will have 3 options:

  1. Make the final balloon payment and buy the car outright
  2. Return the vehicle to the finance company and either walk away or take out a new agreement
  3. Use any equity you have built up as a deposit for a new car

With a Personal Contract Purchase contract, you will have an annual mileage allowance to stick to, and your finance provider may issue charges if you exceed it. You may also incur fees if you return your car with excessive wear and tear outside of what the British Vehicle Rental and Leasing Association deems fair.

Personal Loan

Banks, building societies, and other lenders may offer you the chance to take out a personal loan to fund the price of a new car. If you do this, you will own the vehicle from day one, repaying the loan in fixed monthly payments.

You won’t have to adhere to mileage limits, and you can modify your vehicle how you like, but you may lose money when you come to sell the car as its value will depreciate over time. Likewise, the amount of interest you will have to pay will vary on your credit rating, so if you have a lower credit score, you will have to pay higher interest rates.

Get your next car on finance with Moneybarn

At Moneybarn, we offer a type of vehicle finance similar to Hire Purchase called Conditional Sale.

The key difference is that, with Conditional Sale, there is no ‘option to purchase’ fee at the end of your agreement. With our CS agreement, you’ll automatically own the car once you make your final payment.

We’re proud to have over 30 years of experience helping people up and down the UK get the

Try out our car finance calculator to see what your agreement could look like, based on how much you’re looking to borrow and for how long. Or, if you’re ready, it only takes 5 minutes to get a quote.

Representative 30.5% APR.

FAQs about Hire Purchase car finance

When you finance a car using Hire Purchase, you can buy the car at the end for a small fee, known as the ‘option to purchase’ fee. With leasing a car, you will still make monthly payments but can’t buy the car at the end of your lease.

Leasing a car could be a better option if you know you don’t want to own the vehicle at the end of the agreement, or you’d like to get a new car more often. Leasing agreements can have lower monthly payments than Hire Purchase, but leased cars usually have mileage restrictions.

If you go for HP finance, there will be an ‘option to purchase fee’ at the end of your agreement. This is usually a nominal fee but may be more depending on the terms of your agreement. With PCP finance, there are more options for you to decide from at the end of the agreement:

  • You can hand the car back
  • Pay the balloon payment to own the car outright
  • Return the car and start a new PCP deal

PCP agreements may have cheaper monthly payments, but the balloon payment at the end is typically larger than the fee with HP. PCP might be better if you want to change your car regularly, as you don’t own the car at the end of the agreement if you choose not to.

No, unless you have permission from the finance company you have bought the car from, you cannot modify a vehicle on a Hire Purchase deal. Unless you make the option to purchase fee, you will not be the legal owner of the car, so you will not be permitted to modify the car on finance.

No, you cannot sell a car on HP finance. Only when you own the vehicle outright at the end of your agreement can you consider selling the car. You cannot legally sell the vehicle if you are still making monthly payments.

You can pay a Hire Purchase off early; however, you must contact your finance provider to ask them what your early settlement figure would be and how they want you to pay it. Learn more about settling a car finance agreement early with our guide.

If you want to return your car on finance early, you must pay at least half the total amount of the agreement. Under the voluntary termination section of the Consumer Credit Act 1974, you can return a car on a Hire Purchase agreement if you have paid 50% or more of the total amount payable.

Hire Purchase agreements involve paying a deposit and then making monthly payments over an agreed period. After you’ve made the final payment, you will then make the option to purchase fee to buy the car outright.

A Conditional Sale agreement is very similar. The key difference is that there is no ‘option to purchase fee’ involved. Once you make your final payment, the finance company will transfer full ownership of the car to you.

The legal owner of a car on a Hire Purchase agreement is the finance company or dealership you have bought the car from. You will be its registered keeper until you make all the monthly instalments and pay the purchase fee to buy the vehicle outright. This means you will be responsible for insuring, maintaining, and servicing the car.

Conditional Sale (CS)

Also known as CS car finance, Conditional Sale agreements help you spread the cost of a new vehicle and avoid paying a large deposit.

For the duration of the Conditional Sale agreement, you will be the vehicle’s registered keeper and responsible for maintaining and servicing the car. Our Conditional Sale agreements last between 3-5 years, and once you pay your final monthly payment, you will own the vehicle outright.

Personal Contract Purchase (PCP)

On a PCP plan, you make a deposit and pay monthly instalments over an agreed timeframe, usually between 2-4 years. At the end of the agreement, you will have 3 options:

  1. Make the final balloon payment and buy the car outright
  2. Return the vehicle to the finance company and either walk away or take out a new agreement
  3. Use any equity you have built up as a deposit for a new car

With a Personal Contract Purchase contract, you will have an annual mileage allowance to stick to, and your finance provider may issue charges if you exceed it. You may also incur fees if you return your car with excessive wear and tear outside of what the British Vehicle Rental and Leasing Association deems fair.

Personal Loan

Banks, building societies, and other lenders may offer you the chance to take out a personal loan to fund the price of a new car. If you do this, you will own the vehicle from day one, repaying the loan in fixed monthly payments.

You won’t have to adhere to mileage limits, and you can modify your vehicle how you like, but you may lose money when you come to sell the car as its value will depreciate over time. Likewise, the amount of interest you will have to pay will vary on your credit rating, so if you have a lower credit score, you will have to pay higher interest rates.

Get your next car on finance with Moneybarn

At Moneybarn, we offer a type of vehicle finance similar to Hire Purchase called Conditional Sale.

The key difference is that, with Conditional Sale, there is no ‘option to purchase’ fee at the end of your agreement. With our CS agreement, you’ll automatically own the car once you make your final payment.

We’re proud to have over 30 years of experience helping people up and down the UK get the

Try out our car finance calculator to see what your agreement could look like, based on how much you’re looking to borrow and for how long. Or, if you’re ready, it only takes 5 minutes to get a quote.

Representative 30.5% APR.

FAQs about Hire Purchase car finance

When you finance a car using Hire Purchase, you can buy the car at the end for a small fee, known as the ‘option to purchase’ fee. With leasing a car, you will still make monthly payments but can’t buy the car at the end of your lease.

Leasing a car could be a better option if you know you don’t want to own the vehicle at the end of the agreement, or you’d like to get a new car more often. Leasing agreements can have lower monthly payments than Hire Purchase, but leased cars usually have mileage restrictions.

If you go for HP finance, there will be an ‘option to purchase fee’ at the end of your agreement. This is usually a nominal fee but may be more depending on the terms of your agreement. With PCP finance, there are more options for you to decide from at the end of the agreement:

  • You can hand the car back
  • Pay the balloon payment to own the car outright
  • Return the car and start a new PCP deal

PCP agreements may have cheaper monthly payments, but the balloon payment at the end is typically larger than the fee with HP. PCP might be better if you want to change your car regularly, as you don’t own the car at the end of the agreement if you choose not to.

No, unless you have permission from the finance company you have bought the car from, you cannot modify a vehicle on a Hire Purchase deal. Unless you make the option to purchase fee, you will not be the legal owner of the car, so you will not be permitted to modify the car on finance.

No, you cannot sell a car on HP finance. Only when you own the vehicle outright at the end of your agreement can you consider selling the car. You cannot legally sell the vehicle if you are still making monthly payments.

You can pay a Hire Purchase off early; however, you must contact your finance provider to ask them what your early settlement figure would be and how they want you to pay it. Learn more about settling a car finance agreement early with our guide.

If you want to return your car on finance early, you must pay at least half the total amount of the agreement. Under the voluntary termination section of the Consumer Credit Act 1974, you can return a car on a Hire Purchase agreement if you have paid 50% or more of the total amount payable.

Hire Purchase agreements involve paying a deposit and then making monthly payments over an agreed period. After you’ve made the final payment, you will then make the option to purchase fee to buy the car outright.

A Conditional Sale agreement is very similar. The key difference is that there is no ‘option to purchase fee’ involved. Once you make your final payment, the finance company will transfer full ownership of the car to you.

The legal owner of a car on a Hire Purchase agreement is the finance company or dealership you have bought the car from. You will be its registered keeper until you make all the monthly instalments and pay the purchase fee to buy the vehicle outright. This means you will be responsible for insuring, maintaining, and servicing the car.

What is CS finance?

Conditional Sale is the type of car finance that we offer at Moneybarn, and it doesn’t always require a deposit.

CS finance explained

Types of car finance

Understand all the different types of car finance that could be available to you. From Hire Purchase to Leasing.

Types of car finance

Car finance calculator

Try our car finance calculator to see what a CS finance agreement with Moneybarn could look like for you.

Car finance calculator

For a better road ahead

Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.

Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.

Moneybarn’s VAT registration number is 180 5559 52.

Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)

Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)

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Representative example: Total amount of credit £10,443. Repayable over 58 months, 57 monthly payments of £326.43. Representative 30.5% APR (fixed). Deposit of £906.62. Total charge for credit £8,163.51. Total amount payable £19,513.13. Subject to status and affordability. You could risk losing your vehicle if you do not keep up payments.