Calculate HP finance monthly payments, total cost, and full amortisation schedule. Own your car outright at the end of the agreement.
| Month | Payment (£) | Principal (£) | Interest (£) | Balance (£) | Cumulative Paid (£) |
|---|
Hire purchase is a type of secured credit agreement used to buy cars (and other high-value items) in the UK. You pay a deposit upfront, then make fixed monthly payments over an agreed period. Unlike PCP, there is no balloon payment — once you make your final payment, you automatically own the car outright.
The term "hire purchase" reflects the legal structure: during the agreement, you are technically hiring the car from the finance company. You only become the legal owner when you complete all payments. This means the finance company retains ownership rights until the final payment is made.
When you take out HP finance, the lender pays the dealer for the car on your behalf. You then repay the lender in equal monthly instalments over the agreed term (typically 12–72 months). Interest is charged on the full outstanding balance each month, reducing as you pay down the principal.
Unlike a personal loan, HP is secured against the car itself. The lender has a financial interest in the vehicle until the agreement is settled. This security typically allows lenders to offer lower rates than unsecured personal loans, particularly through dealer finance.
| Feature | Hire Purchase (HP) | PCP |
|---|---|---|
| Monthly payments | Higher (whole car financed) | Lower (depreciation only) |
| Balloon payment | No | Yes (GMFV) |
| Own at end | Yes - automatically | Only if balloon paid |
| Mileage restriction | No | Yes (typically 8,000–12,000/yr) |
| Total cost | Lower than PCP (buy) | Higher if paying balloon |
| Flexibility | Medium | High (3 end options) |
| Best for | Long-term owners, high mileage | Regular upgraders |
Once you have paid 50% of the Total Amount Payable (all monthly payments combined), you can voluntarily terminate the agreement and return the car with nothing further to pay, provided the car is in reasonable condition.
After you have paid more than one third of the total amount payable, the finance company cannot repossess the car without a court order. This is a protected goods rule that prevents aggressive repossession.
You can voluntarily terminate at any time. If less than 50% of total amount payable has been paid, you must pay the difference to reach 50%. If over 50% paid, simply return the car — no extra payment required.
You can request a settlement figure at any time. This is the outstanding balance minus a statutory interest rebate. The lender may charge up to 58 days' interest as an early settlement fee under the Consumer Credit Act.
HP vs personal loan: HP is secured (against the car), personal loans are unsecured. HP rates through dealers can sometimes be competitive, but personal loans from banks and online lenders often offer lower APRs — especially for those with excellent credit. A key difference: with a personal loan, you own the car from day one.
0% HP deals: Some manufacturers and dealers offer 0% APR HP deals, usually on new cars and shorter terms (12–24 months). These are genuinely interest-free but the monthly payments are very high. These deals often require a large deposit and may limit your negotiating power on the car's price.
To calculate your approximate settlement figure on HP finance, the lender uses the Consumer Credit (Early Settlement) Regulations 2004. The formula involves:
The settlement figure is always less than the sum of all remaining monthly payments, because you receive a rebate of future interest. Request a formal settlement figure from your lender — they must provide it within 12 working days.
A larger deposit directly reduces the amount financed, lowering both your monthly payments and total interest. For example, on a £15,000 car at 8% APR over 48 months: