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. Lenders 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 as you see fit.

    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 car that you might not have been able to buy outright. The loan is secured against the car, so although you are 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. You may get offered an interest-free credit (0% APR) deal on a new car, for example. This might still work out more expensive than paying interest on a used car or older model, however. Similarly, you may be able to choose between longer or shorter contract times, which change the amount repayable each month. Lower monthly payments might be more affordable, but can lead to accruing more interest over time. You can also choose to pay a higher deposit if you’re able to, in order to secure 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. 

    Drivers who opt for HP know that they will likely want to keep the car at the end of the contract period, which typically lasts anything from one year to six years. There are generally no mileage limits or damage charges payable, whereas these restrictions are built into PCP agreements. HP finance is available across new and used cars.

    PCP finance, however, is designed for drivers who are more likely to want to change their car every few years. This type of finance consists of lower monthly repayments throughout the contract period, often explained as ‘paying off the depreciation’, rather than the car’s full value. 

    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, trade the car in for a new car and contract (the most popular option), or settle the remaining finance to keep or sell the car. PCP finance tends to only be available for new or nearly-new cars. 

    HP agreements tend to have higher interest than PCP. The main benefit is guaranteed ownership once the finance is paid off. This is attractive to drivers who like to keep one car for a long time.

    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 have made your repayments. You will be 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. 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. 

    It’s important to remember that just because you asked for the settlement letter, does not mean that you then have to sell your car or make any other changes to your contract. You do not have to pay to get the settlement letter. 

    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. If not, it’s a good idea to pay down the outstanding balance for a bit longer before selling, to get into positive equity.

    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.