How hire purchase works
On a hire purchase agreement the lender buys the vehicle and you hire it from them. You pay a deposit up front, then fixed monthly payments across an agreed term — usually somewhere between 12 and 60 months. Once the final payment clears, ownership passes to you.
The word "hire" is doing real work there. Until that last payment, the vehicle belongs to the lender, not to you. That has practical consequences: you cannot sell it, and it stays on the lender's books until the agreement is settled.
What you pay
An HP agreement has three moving parts, and only two of them are negotiable.
- Deposit — anything you put down reduces the amount you borrow, and therefore the monthly payment and the total interest.
- Monthly payments — fixed for the whole term, so they do not move if interest rates do.
- Option to purchase fee — a small administrative fee, often around £10, charged with the final payment to transfer ownership.
Because the payments are fixed, an HP agreement is easy to budget against. The trade-off is that monthly payments are higher than the equivalent PCP, because you are paying off the entire value of the vehicle rather than part of it.
When you own the vehicle
Ownership transfers when the final monthly payment and the option to purchase fee have both been paid. Until then the lender is the registered owner, even though you are the registered keeper and the vehicle sits on your driveway.
This is why you cannot sell a vehicle on HP without settling the agreement first. If you want to change vehicle mid-term, you ask the lender for a settlement figure and either pay it or roll it into the next agreement.
Your rights on a regulated agreement
Most consumer HP agreements are regulated by the Consumer Credit Act 1974, which gives you rights that do not depend on the lender's goodwill.
- Right to withdraw — you can withdraw from the credit agreement within 14 days of it being made. You repay the money borrowed plus any interest accrued.
- Early settlement — you can settle at any time. The lender must give you a settlement figure, and you are entitled to a rebate on the interest you have not yet incurred.
- Voluntary termination — once you have paid at least half of the total amount payable, you can end the agreement and return the vehicle, subject to fair wear and tear.
Who hire purchase suits
HP tends to make sense if you keep vehicles for a long time, cover high mileage, or simply want the thing to be yours at the end without a decision to make.
It is less suited to someone who changes vehicle every two or three years. If that is you, the lower monthly payments on a PCP may fit better — though you will not own the vehicle unless you pay the final balloon payment.