Hire Purchase costs more than buying a car with cash because you will repay the borrowed amount plus interest. Monthly payments on HP can be higher than other options like leasing and PCP, but with HP, there is only the purchase fee, which is usually a small amount. This is generally not as large as the balloon payment for PCP.

HP helps you spread the cost of a car over time and is designed to help people who want to legally own the car at the end of the agreement. However, if you’re looking for flexibility, aren’t sure if you want to own the car, or want to upgrade every year or two, then it might not be the most suitable option.

If you’re still unsure about how you want to buy your next car, check out our guide that explores the pros and cons so you can decide if car finance is worth it.

The key difference between Hire Purchase and leasing is how often you want to change cars and whether you want to own it legally at the end of the agreement.

With both Hire Purchase and leasing, you’ll make fixed monthly payments. With Hire Purchase, you can spread the cost of a new or used car over several years, but you won’t legally own it until the agreement ends and you pay the option to purchase fee.

With leasing, you’ll be in a brand-new car with the latest technology. However, you will never have the option to own the car legally and must return it at the end of the lease.

When you apply for car finance, a credit check will be carried out. This applies to any type of car finance, whether it is HP or another type.

Some lenders use a hard check as soon as you apply, while others use a soft check. A hard check will affect your credit score and leave a mark on your credit file, whereas a soft check will not affect your score and will not leave a visible mark.

Find out more about the differences in our guide to soft credit checks and hard credit checks.

Yes, entering into a Hire Purchase agreement will likely affect your credit score. This is because a new credit line will be added to your credit file, and a hard credit check will have been done to assess your eligibility.

Read more about this in our guide on how car finance affects your credit score.

Although you might have heard car finance referred to as a ‘car loan’, finance and a loan are two very different things.

The difference is that with a personal loan, you borrow a lump sum of money and receive it in your bank account to spend as you wish. With car finance like HP, the lender pays the dealership on your behalf.

Read more about the differences between car finance and personal loans in our guide.

Exactly what you’ll need to get HP depends on the lender and your circumstances. Generally, you’ll need the following information when applying for car finance:

• Proof of income (e.g. bank statements, payslips, or tax returns)
• Proof of identity (e.g. a full or provisional UK driving licence, or passport)
• Address history (most lenders require at least 3 years of UK address history)

At the end of a Hire Purchase agreement, you can pay an ‘option to purchase fee’ to legally own the car. This fee is usually small and will always be agreed upon before starting the finance deal.