What is Hire Purchase?
Hire purchase is a simple form of car finance. You pay for the car in fixed monthly instalments over a pre-agreed contract - from 12 to 60 months - during which time you have full use of the car. Once the contract is complete, you own your car outright.
How is it different to other forms of car finance?
There are many different ways to buy or rent a car, including paying up-front, hire purchase, personal contract hire (PCH), personal contract purchase (PCP) and getting a personal loan.
All of these have their own pros and cons, and there’s no one best option for everyone: it usually comes down to your own financial situation, and what you want to get out of the agreement.
Buying a car can be a big financial decision, and it pays to find the agreement that works best for you. Here we’ll go through a few of the options and explain how they compare to hire purchase.
Hire Purchase vs PCP
Personal Contract Purchase (PCP) is still essentially a loan, but it works differently to hire purchase. The big difference is that you will have a balloon payment that you’ll need to pay at the end of the agreement, or you can hand the car back to the finance company or part exchange it.
Normally, you pay a deposit of around 10% of the car’s value, and the payments are based on the difference between the price of the car and how much the finance company calculates the car will be worth at the end of the agreement.
This can be a benefit, as the monthly payments will be lower than hire purchase, but you will typically pay more interest and you need some certainty regarding how you’ll use the car.
This is because, firstly, you need to consider what you’ll do with the car at the end – as you’ll have a balloon payment to pay if you wish to keep it, or you may have mileage penalties to pay if you return it with more mileage than you contracted for.
Pros compared to hire purchase:
- Flexible – it’s easy to swap into a new PCP deal with a new car when an agreement ends
- Lower monthly payments as you’re not repaying the full value of the car in your monthly payments
- Usually more expensive over the full duration of the loan
- May involve additional charges based on mileage and condition if you don’t buy the car
- You need to find the money for the balloon payment if you wish to keep the car
Hire Purchase vs a personal loan
The main difference between hire purchase and a personal loan is that you own the car from the beginning, as the loan is not secured against it.
As the loan is not secured, you may find getting an acceptance is more difficult, or that there are limitations on how much the lender will offer to loan.
Pros compared to hire purchase:
- Can be no deposit
- You own the car from the start of the deal
- Less easily available - you will need a good credit history and/or assets to use as security
- No option to terminate the agreement (vs a regulated Hire Purchase agreement), if you find you're unable to repay the loan
Hire Purchase vs PCH
Personal Contract Hire (PCH), sometimes called personal leasing, is a way of renting, rather than buying a car. For a fixed monthly payment, you have full use of the car (usually under an agreed mileage limit) for the duration of the deal, which is usually two to three years. There’s usually an initial deposit, or a number of advance payments, to pay too.
Unlike the other deals discussed here, you never actually own the car - once the contract is up, you’ll normally hand it back to the finance company, or alternatively there is often the option to extend the lease.
Pros compared to hire purchase:
- Payments can be lower
- Ideal if you aren’t bothered about owning the car
- You never own the car, so you never get back any of the money you pay in
- Often no way to settle the agreement early, other than paying the remaining payments
- Limited to a set mileage over the contract
How do I know if hire purchase is right for me?
Hire purchase is best for people who ultimately want to own their car, without the steep up-front costs. They’re a good option if you’re looking at paying a larger deposit and if you’re unsure about how long you want to keep the car for, or how many miles you’ll do during the term of the loan.
It’s good for people who can’t or don’t want to get a personal loan to fund their purchase, and who want to spread the cost over the entire term of a contract rather than having a large sum to pay at the end of one.
Hire Purchase with The Car People
When you choose hire purchase through us, you get a simple, hassle-free way to fund your car purchase in affordable instalments, knowing it’s yours to keep at the end of the contract. Here are just a few of the reasons customers choose us:
- Simple application process
- Deposits from £0
- £1,500 minimum amount financed
- Periods from 12 months to 60 months
- Fixed rate of interest
- Fixed payments for the duration of the loan
Our lenders will let you spread the cost over up to five years, with a pre-agreed interest rate that’s fixed for the duration of the agreement. We work with a variety of lenders, and we can also offer options for people who’ve had credit problems in the past.
Our hand-picked cars are all quality-checked by eight different specialists, so you can be reassured you’re getting the very best motors on the market. We check our prices against the market every day to make sure we’re offering the best value.
What’s more, our friendly staff are trained to give you simple, honest advice. They don’t work on commission, so their only motive is to find the very best cars and deals for you and your budget.
We think our customers are happiest when they’ve had the time and space they need to make their own decision - and from the feedback we get, they agree!
Need more information? Check our finance calculator to find cars in your price range.
FAQs about Hire Purchase
Can hire purchase be transferred?
No, normally a hire purchase agreement can’t be transferred to another person.
Can hire purchase be paid off early?
Yes, in most cases if you want to repay your loan early, you can. You may be entitled to a rebate against part of the interest owed for doing this.
What happens if I don’t keep up with hire purchase payments?
If you’re unable to make payments, the car may eventually be repossessed by the lender. However, the lender should contact you first and give you the option to repay the arrears over time.
Can you sell a hire purchase car?
While you’re still making repayments, the car belongs to the lender so it can’t be sold by you. However, once you’ve made your last payment you’re free to sell it if you want to.
Can you get hire purchase with bad credit?
Yes, we work with many different lenders and some of them can offer deals for customers with a bad credit history. Our credit check tool can help you find out if you’re likely to be accepted for finance.