Commonly abbreviated to HP, Hire Purchase is an agreement between a borrower and a lender in which regular monthly payments are made to pay off the outstanding balance on a vehicle. In some cases an initial deposit may be put down, but this is not compulsory with many lenders. It is essentially a mix of a lease and a loan agreement.

Typically, if a deposit is paid, the amount will be agreed with the dealership. The outstanding balance is then paid off over an agreed period of time in regular, monthly instalments. Like mobile phone monthly payments, you are in essence hiring the car whilst payments continue.

Once the final payment has been made, the vehicle belongs to you – the “purchase” side of the agreement. In some cases at this point there may be an additional administration fee or a small option-to-purchase fee, but this will all have been clarified at the time of taking the agreement. As always, you should look through the terms and conditions of any agreement before taking out finance.

This form of finance differs from other options in that payments are calculated by the current retail price of the car, any deposit put down and the terms of the agreement including any fees.

Advantages of scheme:

  • Set, regular payments for an agreed period makes budgeting easier for individual
  • Unlike other forms of finance, there is no cap on car usage – you are free to use it as you see fit
  • Once payments are completed, the car is yours to own
  • Hire purchase schemes generally attract lower interest rates than many other finance options
  • As the most popular form of car finance, you can have extra peace of mind
  • As repayments are secured against the vehicle, unlike some other forms of car finance, it may be easier to get finance – thus it may suit people who have struggled to get credit in the past
  • Allows early settlement of agreement by requesting from the lender the outstanding amount


  • Total payments can be greater than on other schemes for short-term agreements
  • A hire purchase agreement relies on regular payments. Failure to make payments on time could result in the repossession of your vehicle
  • Because the vehicle is not owned until payments are completed, you will not be able to sell the car