A clear HP car finance checklist for UK buyers, covering affordability, documents, rights, risks and alternatives so you can apply with confidence and avoid costly surprises.
Your essential pre-application checklist
A Hire Purchase agreement can be a straightforward path to car ownership, but only if you prepare well. Use this guide to understand the costs, documents, rules and rights that apply in the UK before you apply or buy.
Is this guide right for you?
This checklist is designed for UK consumers considering HP on a new or used car. If you want predictable payments, eventual ownership, and no mileage caps, HP can fit. If you swap cars often or prioritise lower monthly payments, you may prefer other options.
Key terms made simple
- Hire Purchase (HP): You pay a deposit, then fixed monthly instalments plus interest. You are the registered keeper from day one, but legal ownership transfers only after the final payment and a small transfer fee.
- Deposit: Often around 10 percent of the car price. Larger deposits reduce monthly payments and interest.
- APR: The annual percentage rate reflecting interest and certain charges. A lower APR usually means lower total cost.
- Term: Length of the agreement, commonly 24 to 60 months. Longer terms reduce monthly payments but increase total interest.
- Settlement figure: The amount required to end the agreement early and gain ownership or clear the finance before sale.
- Arrears: Missed payments that can lead to fees, negative credit reporting and repossession if unpaid.
- Cooling-off period: 14 days for most UK HP agreements, allowing you to withdraw after signing.
Understanding APR is not just percentages - it is what you will pay in real terms over the life of your agreement.
Choosing between HP and other routes
HP suits buyers who value clear ownership at the end with no mileage limits. PCP often offers lower monthly payments but requires a large final payment to own the car. Leasing avoids ownership and can include maintenance, but you must return the car and respect mileage limits.
Quick comparison
| Feature | HP | PCP | Lease |
|---|---|---|---|
| Ownership at end | Yes after final fee | Only if balloon is paid | No |
| Mileage limits | None | Yes | Yes |
| Monthly payments | Medium | Lower | Often lower |
| Final payment | Small transfer fee | Large balloon to own | None |
| Early settlement | Allowed, fees may apply | Allowed, fees may apply | Usually restricted |
| Suits who | Keepers, planners | Frequent changers | Drivers wanting simplicity |
What it will cost and why it matters
- Upfront: Deposit typically around 10 percent. Add any admin fees or option to purchase fee at the end, often about £10.
- Monthly: Fixed instalments over the term plus interest. Longer terms reduce the monthly figure but increase total paid.
- Interest: Driven by APR and your credit profile. Improving your credit can materially lower total cost.
- Insurance: Comprehensive cover is usually required for HP. Factor this into your budget.
- Missed payments: Expect late fees, negative credit reporting and potential repossession because the lender owns the vehicle until you complete the agreement.
A realistic budget prevents strain. UK lenders must check affordability under FCA rules, but your own forecast is vital. Build a buffer for fuel, servicing, tyres, insurance and tax.
Who is likely to be approved
Lenders will assess stability and affordability alongside credit history.
- Income: Regular income with evidence. Self-employed applicants may need accounts and SA302s.
- Credit: A higher score typically unlocks better rates. Review your report with Experian, Equifax or TransUnion and correct errors.
- Outgoings: Lenders review existing commitments to ensure you can afford the repayments.
- Vehicle: New and used cars are eligible. The car must be insurable and in good condition.
If your credit is thin or impaired, evidence of recent on-time payments and a larger deposit can help. Expect a thorough affordability check and identity verification.
The HP journey in simple steps
- Check your credit report and correct errors
- Set a monthly budget with a safety margin
- Choose car and compare HP and PCP quotes
- Gather ID, address and income documents
- Get a soft search quote where possible
- Review APR, fees and total payable
- Sign only when terms are understood
- Insure, collect and keep payments on track
Benefits and trade-offs
HP advantages are clarity and eventual ownership without mileage penalties. Payments are predictable and there is no large balloon at the end. The trade-off is that ownership only passes after the final payment and you cannot sell or significantly modify the car during the term. Compared with PCP, monthly payments can be higher, but there is no mileage risk and no end-of-term damage charges. If you miss payments, the lender can repossess because they retain title.
Red flags to spot early
- Overstretching the budget: If the payment only works without insurance or maintenance, it likely does not work.
- Early exit penalties: Some agreements include fees. Ask for the settlement method and any charges in writing.
- Vehicle use rules: Expect restrictions on selling, exporting and major modifications. Taking the car abroad is usually limited, often up to 30 days at a time within the EU.
- Credit application footprints: Multiple close applications can depress your score. Use soft searches where available.
If terms are unclear, pause and ask for a full written breakdown of APR, fees and total payable.
Alternatives if HP is not a match
- PCP: Lower monthly payments and flexibility to hand back, but a large final payment to own and mileage limits.
- Personal loan: You own the car from day one. Rates depend on credit strength and there may be no vehicle restrictions.
- Lease: Fixed term use with maintenance options. No ownership and mileage charges apply.
- Paying cash: No finance costs, but consider opportunity cost and emergency savings.
Snapshot comparison
| Option | Ownership from start | Mileage limits | Typical monthly | End-of-term |
|---|---|---|---|---|
| HP | No | None | Medium | Small transfer fee then own |
| PCP | No | Yes | Lower | Pay balloon or return |
| Personal loan | Yes | None | Varies | Keep or sell anytime |
| Lease | No | Yes | Often lower | Return car |
Frequently asked questions
How much deposit do I need for HP?
Around 10 percent is typical, though more can reduce total interest and monthly cost. Some lenders offer low or zero deposit promotions, subject to credit.
Will HP affect my credit score?
The lender runs a credit check. Approved finance appears on your file. Paying on time can help your profile, while missed payments harm it and may lead to repossession.
Can I withdraw after signing?
Yes. Private individuals usually have 14 days to withdraw from most UK HP agreements. You must notify the lender within the period and repay any amount advanced plus interest for the days used.
What documents do I need?
Proof of identity, address and income. Typically a UK driving licence or passport, a recent utility bill or bank statement, and the last three months of payslips or statements. Self-employed applicants may need business accounts and tax documents.
Can I sell the car before the end?
Not until you settle the finance. Request a settlement figure, pay it, then you can sell or part-exchange. Check for early exit fees in your contract.
Are there mileage or damage charges with HP?
No mileage limits and no end-of-contract damage charges. You must maintain the vehicle and comprehensive insurance throughout the term.
What to do now
- Review your credit file with Experian, Equifax or TransUnion.
- Set a realistic monthly budget including insurance and running costs.
- Compare HP quotes with PCP and personal loans.
- Gather documents to speed approval.
- Ask for a written total payable and settlement process.
Taking these steps with Switcha-level diligence can reduce costs and help you secure fair, sustainable finance.
Legal and consumer protections
You have UK consumer credit rights, including a 14-day cooling-off period on most HP agreements. Lenders must assess affordability. Missing payments can trigger fees, negative reporting and repossession. This guide is general information, not financial advice. Consider independent advice if unsure.
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