HP Car finance explained: what it is and how it works

The straightforward route to owning your next car

Why HP still matters in the UK market

Hire Purchase remains a go-to for UK car buyers who value simple, predictable payments and full ownership at the end. With fixed terms, no mileage limits and no balloon payment, HP can be the calm, transparent path to getting the keys and keeping them.

Who should consider Hire Purchase

HP suits drivers planning to keep a car for several years, cover varied or high mileage, and prefer certainty over flexibility. If you want ownership without an end-of-term lump sum, it fits. If you switch cars often or prioritise the lowest monthly cost, other products may be better.

Key ideas and terms made simple

• Deposit - Typically around 10% of the car price, though no-deposit options exist. A higher deposit usually lowers monthly payments.
• Term - Usually 1 to 5 years. Shorter terms mean higher payments but less interest overall.
• APR - The annual percentage rate reflects the interest and fees you pay. HP rates commonly range from about 5% to 10% APR, depending on credit and lender.
• Option to purchase fee - A small fee, often about £100, paid with the final instalment to take ownership.
• Ownership - The finance company owns the car until the last payment and fee are made. Missed payments can lead to repossession.
• Mileage rules - None. Unlike PCP, HP has no mileage caps, so you can drive freely without end-of-term charges.
• Balloon payment - Not part of HP. You pay down the full financed amount over the term.

Predictability is the hallmark of HP - fixed payments, no mileage caps, and ownership at the finish line.

Your choices within HP - and how PCP compares

HP options you can tailor

• Deposit level - Standard 10% deposit, or explore no-deposit offers if available. No-deposit can mean higher monthly costs or APR.
• Term length - 1 to 5 years. Choose a term that balances affordability with total interest paid.
• Lender type - Franchised dealers may offer sharper APRs or deposit contributions. Independent dealers can be flexible but often pricier. Online lenders add convenience and quick approvals.
• New vs used - HP is especially popular for used cars, where ownership and value retention matter to many buyers.

How HP stacks up against PCP

What it might cost - and the real-world impact

Consider a £14,000 car. Put down a 10% deposit (£1,400). Finance £12,600 over 36 months at a representative 5% APR. Payments could be around £378 per month. After the final payment plus a £100 option to purchase fee, the car is yours. Total paid is roughly £15,108, covering the price, interest and fee. Actual costs vary by credit profile, car age and lender incentives.

• Rates - Many buyers see 5% to 10% APR. Manufacturers may advertise 0% on select new models.
• Dealer incentives - Franchised dealers sometimes contribute £500 to £2,000 towards the deposit. Compare carefully to ensure the headline saving is not offset elsewhere.
• Risk - Missed payments can harm your credit and the car can be repossessed. Budget with headroom for fuel, insurance, servicing and repairs.

HP removes mileage anxiety and balloon shock, replacing them with steady, predictable payments.

Who can get HP - typical eligibility checks

Lenders assess affordability and risk using:

• Credit history - Strong credit helps secure lower APRs. Thin or challenged credit can still be approved, often at higher rates.
• Income and stability - Payslips or bank statements show consistent income. Self-employed may need more documentation.
• Residency and ID - UK address history, photo ID and proof of address are standard.
• Vehicle specifics - Age and mileage can affect rates, especially with independent dealers.
• Deposit - Around 10% is common, though some lenders offer no-deposit HP. Be realistic about monthly affordability over the full term.

A realistic budget and honest application are as important as the car you choose.

From application to ownership - the HP journey

1. Set a budget with a comfort buffer for running costs.
2. Compare HP quotes from dealers and online lenders.
3. Choose deposit and term that fit your cash flow.
4. Submit application with ID, address and income evidence.
5. Review the APR, fees and total amount payable.
6. Sign agreement and take delivery once approved.
7. Keep up payments and maintain the vehicle properly.
8. Pay final instalment plus option to purchase fee.

Upsides and trade-offs to weigh

Pros

• Predictable fixed payments and clear path to ownership.
• No mileage caps or end-of-term wear charges.
• Simple structure - no balloon payment surprises.

Cons

• Higher monthly payments than PCP for the same car.
• Less flexible if you plan to change cars frequently.
• You carry depreciation risk once you own the car.

Read this before you sign

• Check total amount payable - not just the monthly figure.
• Look for fees - arrangement fees, option to purchase, late payment charges.
• Stress test your budget - could you still pay if costs rise or income dips?
• Inspect warranty coverage and expected servicing costs, especially on used cars.
• If considering no-deposit HP, compare the higher APR or payment impact over the full term.

Alternatives if HP is not quite right

• PCP - Lower monthly payments and options at term end, but mileage limits and a balloon to keep the car.
• Leasing (PCH) - Use a new car for fixed monthly payments, then hand it back. No ownership.
• Personal loan - Own the car from day one, often competitive rates for strong credit.
• Paying cash - No finance costs, but consider the opportunity cost of using savings.
• Salary sacrifice for EVs - Potential tax savings if your employer offers it.

Quick answers to common questions

Is HP cheaper than PCP each month? Usually not. HP payments are typically higher because you repay the full amount with no balloon.

Can I settle early? Yes, but ask for a settlement figure and check any early settlement terms. You can reduce interest by settling sooner.

What if I exceed mileage? HP has no mileage limits, so there are no excess mileage charges.

Will I own the car during the term? No. The lender owns it until you make the final payment and option to purchase fee.

Are zero-deposit deals a good idea? They can help you get on the road, but expect higher monthly costs or APR. Compare like-for-like totals.

Can my car be repossessed? If you miss payments and cannot resolve arrears, the lender can repossess. Communicate early if you face difficulties.

Ready to move forward

• Compare HP against PCP to confirm the right fit for your plans.
• Gather payslips, ID and address documents to speed up approvals.
• Use Switcha to compare representative APRs, dealer incentives and total payable figures across UK lenders, then pick a deal that fits a realistic budget.

Important information

This article is for general guidance only and is not financial advice. Eligibility and rates depend on your circumstances and lender criteria. Always read the agreement carefully and consider independent advice if unsure.