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    HP car finance – the ultimate guide

    Nearly all new cars in the UK are bought on finance, with the vast majority on personal contract purchase (PCP) finance. Hire purchase (HP) finance has been around much longer – so what are the main differences?

    Read on to learn more about how HP car finance works:

    What is HP car finance?
    How does hire purchase finance work?
    What is the difference between HP and PCP finance?
    Who owns the car with HP finance?
    Can I sell a car on HP finance?
    Can I change my car on HP finance?
    Can I end my HP finance agreement

    what is HP finance?
    Do you know the difference between HP and PCP? You should if you’re considering buying a car on finance.

    What is HP car finance?

    HP finance is a financial product, from a lender. They finance your buying of a new or used car from a dealership or other car marketplace. You pay off the car’s value, plus interest, over a certain amount of time. Once the finance is fully settled, the car is yours to keep or sell.

    How does hire purchase finance work?

    Hire Purchase is set up to make car purchasing more accessible. You buy the car with a deposit and pay off the outstanding balance in equal monthly instalments with interest. 

    This way, you can end up driving and owning a nicer car than you would have been able to buy outright. The loan is secured against the car, so although you’re registered as the keeper, it’s only when the finance is paid off that you become the car’s legal owner.

    Different HP finance agreements offer different benefits, depending on what you can qualify for, e.g.:

    • An interest-free credit (0%APR) deal on a new car – although this could be more expensive than paying interest on a used or older car.
    • Longer/shorter contract times to suit you – changing the monthly repayment levels as well as the interest accrued over time.
    • A higher or lower deposit, depending on what suits you. A higher deposit will typically mean favourable terms. 
    How does HP finance work?
    HP finance has flexible options, so it’s worth taking the time to work out what’s best for you

    What’s the difference between HP and PCP finance?

    HP finance allows you to pay for your car in instalments, rather than upfront. In this regard, it’s the same as PCP. Both plans are also available for new and used cars.

    While PCP works well for drivers who like to change their cars frequently, HP finance is more beneficial for drivers who are likely to keep the car once it’s paid off. 

    HP finance typically does not impose mileage limits or damage charges, although it can have higher interest than PCP. At the end of the PCP contract, there is still a certain amount of finance outstanding on the car. You can either end the contract and hand back the car, sell the car, part-exchange it for a new PCP contract (the most popular option), or settle the remaining finance to keep the car. 

    For more information on car financing, read our FAQs or our ultimate guide to selling your car on finance. 

    Who owns the car with HP finance?

    Your lender owns the car until you’ve made your repayments. You’re the registered keeper from the start of the contract, and at the end, you can pay a small fee (around £10, usually) to transfer legal ownership.

    can i sell a car on HP finance
    The primary benefits of HP finance are equal payments and guaranteed ownership of the car once the finance is settled.

    Can I sell a car on HP finance?

    Yes! Most people don’t know they can sell their car on finance. You have the right to ask for your settlement figure at any stage (for free). This shows the remainder of the finance that needs to be paid, as well as any charges, fees, and interest. Some contracts will include an ‘early exit fee’ if you settle your finance before a certain period. With this settlement letter in hand, you can sell your car to a dealer who will clear the remaining finance and pay you any surplus. 

    You may also be able to sell your financed car when you’re still in negative equity. If you wish to downsize to a cheaper car, or your car’s depreciated more than expected, this could still work out better than riding out the contract.

    If you want to sell your HP financed car, it’s vital to value your car around the same time as you get your settlement letter, to see if a sale is likely to pay off the remaining finance.

    Can I change my car on HP finance?

    No – if you like to change your car every few years, it’s recommended that you use PCP finance instead. To change your car on HP finance, you must pay a certain proportion of the ‘total amount payable’ – usually at least 50% – then get a settlement letter from your lender. At that point, you can sell your car to a dealership and use the sale to clear the finance. 

    Other than selling your car, there generally aren’t options to trade it in for a different vehicle during the contract.

    Can I end my HP finance agreement?

    If you want to end your agreement and hand back your car, you can use your voluntary termination rights. Read more about these in our guide to selling your car on finance.

    can i end hp finance early?
    You should consider how long you plan to keep the same car when deciding between HP and PCP car finance.

    Should you sell your car?

    Want to learn more about the best ways to sell your car? Check out more of our guides here, covering everything you need to know about different finance schemes, and what they mean for you as a car owner. 

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