HP Car finance for beginners: a step by step starter guide

Your first look at HP car finance

Hire Purchase explained simply - pay monthly, then own the car at the end. We set out the facts UK buyers need to know, so you can budget confidently and avoid surprises.

Understanding APR is not just percentages - it is what you pay in real money over time.

Is this you?

If you want predictable payments and eventual ownership without mileage limits or end-of-term charges, HP could fit. It suits first-time buyers, families planning to keep a car for years, and anyone who prefers a straightforward route to ownership over cycling through cars every few years [1][2][10].

Key terms made simple

• Deposit - Usually around 10% of the car price, though some lenders offer 0% deposit HP depending on credit and vehicle type [5][7].
• APR - The annual percentage rate that reflects borrowing costs. Better credit usually means a lower APR [5].
• Term - Typical HP terms are 12-60 months. Longer terms reduce monthly payments but increase total interest [5].
• Ownership - The lender owns the car until you make the final payment and small transfer fee. You are the registered keeper from day one [1][4].
• Option to purchase fee - Often about £100 to transfer legal ownership at the end [1][3].
• Early settlement - You can usually pay off HP early. Ask the lender for a settlement figure, which may include a rebate of future interest [4][9].
• Repossession risk - Miss payments and the lender can take the car back. Budget with care [8].

Short standout line: HP is pay monthly now - own later, with no mileage caps [2].

Your choices at a glance

Almost every UK dealer offers HP. Here is how options vary [2][6]:

• Franchised dealers - May offer 0% APR or deposit contributions on new models. Strong for manufacturer-backed incentives.
• Independent dealers - Commonly work with lenders like Black Horse or Santander, with APR typically 5-10% depending on credit.
• Deposit flexibility - Deposit from 0-30% is common. No-deposit deals exist but expect higher monthly payments or APR [5][7].
• Term flexibility - 12-60 months. Shorter term means higher monthly cost but lower total interest [5].
• Credit tiers - Prime borrowers see the best APR. Near-prime or thin credit files may pay more.

HP vs PCP - which suits you?

PCP is popular for new cars due to lower monthly payments, but HP removes the balloon payment and mileage rules - ideal if you plan to keep the car [2].

What it might cost you

Let us use a UK example to show real numbers [3]:

• Car price - £14,000
• Deposit - £1,400 (10%)
• Amount financed - £12,600
• APR - 5%
• Term - 36 months
• Monthly payment - About £378
• Total over term - £13,608
• Option to purchase fee - £100
• Final cost - About £15,108

What changes the numbers:

• Deposit size - Lower deposit increases monthly cost and interest paid overall [5][7].
• APR - Influenced by credit profile, vehicle, and lender competition [6].
• Term - Longer spreads cost but raises total interest [5].

Risks to factor in:

• Missed payments can lead to repossession and a negative mark on your credit file [8].
• You cannot sell the car until the finance is settled - the lender is the legal owner until the end [4][9].

Can you get approved?

Eligibility usually depends on:

• Credit history - A clean file helps. Some lenders accept limited histories at higher APR [5][6].
• Income and affordability - Lenders assess your monthly budget including other credit commitments.
• Deposit - Not always required, but it improves approval odds and reduces monthly payments [7].
• Vehicle age and mileage - Newer cars often attract better rates. Older vehicles can still be financed via HP subject to lender policy.
• Residency and ID - UK address history, proof of identity, and proof of income are standard checks.

Good to know:

• You are the registered keeper from day one, but not the legal owner until the final payment and transfer fee are made [1][4].
• Early settlement is possible. Ask for a settlement figure if you plan to sell or switch cars [9].

HP in practice - step by step

1. Set your budget - monthly figure and total cost in mind.
2. Check credit - correct errors and understand your likely APR band.
3. Choose a car - get a realistic price from a dealer.
4. Compare HP quotes - franchised vs independent lenders.
5. Pick deposit and term - balance payment size with total interest.
6. Read the agreement - fees, arrears rules, and ownership transfer.
7. Sign and collect - you are registered keeper, lender owns it.
8. Make payments on time - request settlement if plans change.

Weighing it up

Pros:

• Clear path to ownership with no balloon payment [1][2].
• No mileage limits or wear-and-tear charges at the end [2][10].
• Predictable fixed payments and flexible terms [5].

Cons:

• Monthly payments usually higher than PCP [2].
• You cannot sell the car until finance is settled [4][9].
• Missed payments risk repossession and credit damage [8].

Considerations:

• Total cost vs monthly comfort - a longer term cuts the monthly but adds interest [5].
• Consider manufacturer promotions on new cars that can lower APR [6].

Before you sign - be alert

• Check the APR, total amount payable, fees, and whether there is an option to purchase fee (often around £100) [1][3].
• Stress-test your budget against fuel, insurance, servicing, and unexpected costs.
• Ask about early settlement and any charges.
• Confirm you can afford payments even if interest-free periods or incentives end.
• Verify there are no mileage rules - HP typically has none, unlike PCP [2].

Alternatives worth a look

• PCP - Lower monthly payments and flexibility to hand back or upgrade, but a large final balloon to own and mileage limits [2].
• Personal loan - Unsecured loan to buy the car outright. You own from day one, often competitive rates for excellent credit.
• Leasing (PCH) - Fixed monthly rental, never own the car. Mileage and condition rules apply.
• Cash - No finance cost, strongest negotiating position if you have savings.

Quick answers to common questions

• Who owns the car during HP? - The finance company. You are the registered keeper until you pay the final instalment and option to purchase fee [1][4].
• Can I get HP with no deposit? - Sometimes, yes. Expect higher monthly payments or APR with zero deposit deals [7].
• Can I sell a car on HP? - Not until the finance is settled. Request a settlement figure first [4][9].
• What if I miss a payment? - Contact the lender immediately. Persistent arrears can lead to repossession and credit harm [8].
• Is HP cheaper than PCP? - Monthly, usually no. But HP avoids a balloon payment and end-of-term charges, so costs are more transparent [2].
• Is there a mileage limit with HP? - No mileage caps, unlike PCP [2].

What to do next

• Set a realistic monthly budget and decide how long you plan to keep the car.
• Gather quotes from a franchised dealer and an independent - compare APR, fees, and any incentives.
• Run the numbers with different deposits and terms to see total cost, not just the monthly figure.
• If you are ready, apply with documents to hand - proof of ID, address, and income.

Important information

This guide is for general information only and is not financial advice. Lender criteria, APRs, and eligibility vary. Always read the agreement carefully and consider independent advice if unsure.