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Car finance advice

Car finance: the Hire Purchase explained

Hire purchase is the original car finance product. The Car Expert explains how it works and what you need to know.


When is a hire purchase the best type of finance?

If you are planning to keep the car at the end of the agreement, then a hire purchase is a good choice.  The monthly payments are higher than for a PCP, but you are paying off the whole car with no lump sum at the end.  It also usually works out slightly cheaper overall.

If you are buying a new car, the interest rate offered by the manufacturer finance company will probably be pretty good and there are often deposit contributions to reduce the amount you need to put in up front. If you are buying a used car, however, the interest rate usually goes up dramatically and a hire purchase can be a lot more expensive than a personal loan.

If you want or need to change your car before the finance agreement ends, a hire purchase is a lot better than a PCP, because you have paid more of the car off. This will reduce the chance of having a substantial amount of negative equity that needs to be paid off when you are trying to sell the car.

What to look for in a hire purchase

The most important thing to look at on any hire purchase quotation is the APR (annual percentage rate). This tells you how much you will be paying in interest in fees for the loan. Obviously, a lower number is better.

Next, look for the Total Amount Payable. This spells out exactly how much you will have paid by the end of the agreement. The longer the term, the more you will be paying in total – even though your monthly payments will be cheaper. So if you borrow the same amount of money at the same interest rate, you will end up paying more in total on a five-year HP compared to a three-year HP.


Most car finance agreements in the UK are regulated by the Financial Conduct Authority, and anyone involved in the selling of car finance must be accredited by the FCA.  You should always consider the terms and conditions of any agreement carefully before taking out any form of car finance, as you are making a substantial ongoing commitment and there may be significant costs if you change your mind or are unable to meet your commitments at a later date.

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Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.
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