HP Car finance FAQs: 25 common questions answered

Clear answers to key UK HP car finance questions

Understanding APR is not just percentages - it is what you actually pay over time.

A Hire Purchase agreement lets you spread the cost of a car with a deposit and fixed monthly payments. Until you finish paying, the lender owns the car, but you are the registered keeper. For many UK drivers planning long-term ownership, HP offers clarity, stability and no mileage limits.

Is this guide right for you?

This guide suits UK consumers comparing HP with PCP, weighing long-term ownership against flexibility, or planning to sell or switch mid-term. It is also useful if you want to optimise deposit size, contract length and APR, understand early exit rights, and compare providers such as manufacturer finance arms and independent lenders.

Jargon decoded - the essentials

• Hire Purchase (HP) - A car finance agreement where you pay a deposit and fixed monthly instalments with interest. The lender owns the car until the final payment, then you become the legal owner.
• Personal Contract Purchase (PCP) - A finance product with typically lower monthly payments, a large optional final balloon payment, mileage limits and potential damage charges.
• APR - Annual Percentage Rate - the total annual cost of borrowing, including fees. Your credit score strongly influences APR offers.
• Deposit - Usually 10% or more for HP. A larger deposit can reduce monthly costs and may unlock better APRs.
• Term length - Commonly 1 to 5 years. Longer terms reduce payments but increase total interest paid.
• Settlement figure - The amount needed to pay off and close the agreement early, including any fees due at the time of settlement.
• Voluntary termination - Your right to end certain agreements once you have paid at least 50% of the total amount payable, subject to fair vehicle condition and contract terms.
• Registered keeper vs owner - With HP, you are the keeper from day one, but legal ownership transfers only after the final payment.

Shorter terms cost more monthly but less overall interest.

Choosing your route - HP or PCP

HP and PCP serve different needs. Use this side-by-side to assess fit.

• Best for HP - Drivers who keep cars long term, want predictable ownership and no mileage worries.
• Best for PCP - Drivers who like changing cars frequently and want lower monthly payments, accepting mileage and condition rules.

If you plan to keep the car, HP usually simplifies the maths.

Pounds and pence - costs, impacts and risks

• APR variability - Rates depend on credit profile and provider type. Franchised dealers and manufacturer finance can run competitive or 0% APR new-car offers, while independent dealers often quote higher APRs.
• Deposit effects - A 10% deposit is common for HP. Larger deposits lower monthly payments and may secure better APRs.
• Term trade-offs - 1 to 5 years is typical. Longer terms lower monthly costs but increase total interest paid.
• Fees to expect - Option to purchase fee at the end, possible setup fees, and potential early settlement or exit fees depending on the contract.
• Risk of negative equity - Less common with HP than PCP, but fast depreciation early in the term can still leave you owing more than the car is worth.
• Insurance and running costs - These sit outside finance. Budget for comprehensive cover, servicing, MOTs, and tyres.

Standout point: Total cost is the monthly payment multiplied by term plus fees - not just the APR headline.

Who qualifies - and what lenders look for

Lenders assess affordability, stability and credit history.

• Credit score - Strong scores tend to secure lower APRs. Lower scores may mean higher rates or a decline.
• Income and stability - Regular income, time at address, time in job, and low existing credit commitments help.
• Deposit size - A larger deposit reduces lender risk and may improve your offer.
• Vehicle age and type - New cars can attract promotional rates via manufacturer finance arms. Older or used vehicles often carry higher APRs.
• Provider differences - Manufacturer finance (for example Ford Credit) and large lenders (for example Black Horse) may offer different incentives versus independent broker or dealer finance.

Tip: Check your credit file before applying and correct any errors to avoid needless rejections.

The HP journey - from quote to ownership

1. Set a realistic budget including insurance and running costs.
2. Check credit file and improve any quick-win factors.
3. Compare HP offers across franchised and independent dealers.
4. Decide deposit size and preferred contract length.
5. Review APR, fees, and total amount payable carefully.
6. Sign the agreement and pay the deposit.
7. Make monthly payments on time throughout the term.
8. Pay the final fee and become the legal owner.

Weighing it up - advantages and drawbacks

• Pros
  • Ownership at the end with no mileage caps
  • Simple structure with fixed payments and clear end-point
  • Typically fewer end-of-term charges than PCP
  • Suitable for long-term keepers and high-mileage drivers
• Cons
  • Monthly payments can be higher than PCP
  • Early in the term, potential negative equity risk
  • Ending early can trigger settlement costs or fees
  • Interest costs rise with longer terms and smaller deposits

If predictability matters more than swapping regularly, HP is often the safer choice.

Watchouts before you sign

• Read the total amount payable - not just the monthly figure.
• Confirm any fees - setup, option to purchase, and early settlement.
• Check your rights to voluntary termination and conditions attached.
• Consider depreciation - especially for nearly-new and niche models.
• Ensure affordability stress-tested against interest and cost-of-living changes.
• Verify that insurance, servicing and MOT timelines fit your budget and mileage.

Short checklist: deposit set, APR compared, total cost known, exit options understood.

Alternatives worth a look

• PCP - Lower payments and flexibility at term end, but mileage and condition rules apply and a balloon payment is needed to keep the car.
• Personal loan - Unsecured loan from a bank can fund the car outright. You own the vehicle immediately and may secure competitive rates if your credit is strong.
• Leasing/Contract Hire - Fixed rentals with no ownership at the end, good for predictable costs and regular upgrades, but excess mileage and damage charges apply.
• Cash purchase - No interest or fees, but ties up savings that could be used elsewhere.

Match the product to how long you keep cars and how many miles you drive.

Common questions - fast, clear answers

• Can I sell a car on HP? Yes. Request a settlement figure from your lender. A buyer or dealer can pay off the finance first, then any surplus comes to you.
• Can I end HP early? Usually once you have paid at least 50% of the total amount payable, you can use voluntary termination. Check your agreement for any fees and fair condition requirements.
• Do HP deals have mileage limits? No. That is a PCP feature. HP has no mileage-based penalties at term end.
• What deposit do I need? Typically 10% or more. A larger deposit can reduce monthly costs and improve APR.
• How long do HP terms run? Commonly 1 to 5 years. Longer terms reduce monthly payments but raise total interest.
• Who offers HP in the UK? Manufacturer finance arms like Ford Credit and independent lenders such as Black Horse, plus dealer and broker networks.
• How does credit score affect APR? Strong credit usually earns lower APRs. Weak credit can mean higher rates or a decline.

What to do next

• Compare at least three HP quotes from franchised dealers, independent dealers and online brokers.
• Test different deposits and term lengths to see payment and interest impacts.
• Ask for the total amount payable and itemised fees in writing.
• If you might change car mid-term, get example settlement figures upfront.

Final tip: Secure the car and the finance only when both deal terms work for you.

Important information

This guide provides general information for UK consumers and is not personal financial advice. Always check the specific terms in your agreement, verify current rates and fees, and consider independent advice before committing.