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Hire Purchase Explained

In this article, we will explain what Hire Purchase (HP) is and provide you with all the information you need to decide whether it’s the right option for you.

Hire Purchase Explained

Amber Khan

Published: 10 May 2023

Updated: 10 May 2023

Read time: 5 minutes

In this article, we will explain what Hire Purchase (HP) is and provide you with all the information you need to decide whether it’s the right option for you.

What is Hire Purchase (HP)?

A Hire Purchase (HP) contract is the most straightforward type of car finance available. It is typically 2-5 years long, needs a deposit, and tends to have higher monthly payments. At the end of the contract, the car will be owned by you. Hire Purchase is also sometimes referred to as a ‘Conditional Sale’ agreement.

Hire Purchase (HP) is perfect if you want to own the car.

HP Terms Explained

Term

What you need to know

Duration of Agreement

The total duration of your agreement in months.

First Payment

The first amount you pay after taking delivery of your vehicle, usually one month after the finance agreement starts.  This is then followed by your normal monthly payments.

XX Monthly Payments of

The amount you pay per month of your finance agreement. Throughout the contract, your monthly payments will pay off the total value of the car, and therefore tend to be higher than other finance contracts such as a PCP.

Final Payment

The amount you pay in the last month of your finance agreement to end your contract.

On the Road Price/
Cash Price

The total amount your vehicle is worth if you were to purchase your vehicle outright.

Customer Deposit/
Deposit

The total amount you put down as a deposit for your vehicle. The deposit can affect your monthly payments; the higher the deposit, the lower the monthly payments will be.

Deposit Contribution / Dealer Deposit Contribution / Manufacturer Deposit Contribution

This refers to the total amount your dealer (JCT600) or Manufacturer (i.e. SEAT) will put down towards your finance agreement for you.

Amount of Credit

The total amount you are borrowing on your finance agreement.

Total Amount Payable

The total amount you will pay to purchase your vehicle on this finance agreement. It includes your deposit and all monthly payments.

Fixed Rate of Interest

Rate of interest on the amount of credit per annum, fixed for the duration of the agreement.

Representative APR

The Annual Percentage Rate you are being charged for your finance agreement.

Advantages of Hire Purchase

  • You will own the car at the end
  • There is no set mileage
  •  The length of the contract is flexible (dependent on manufacturer)

Things to consider

  • The monthly payments tend to be higher than other forms of finance
  •  You can’t sell the car until you’ve settled the finance agreement

Can I settle my HP contract early?

Yes, but early repayment charges may apply.

We hope that this car finance guide was useful. If you still have questions, we’re on hand to help, find your local dealership here. We currently have car finance offers available on a wide range of cars – take a look today.

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Representative finance example: Personal Contract Purchase (PCP)

Representative APR%
9.90% APR 		 First Payment
£249.71		 46 Monthly
payments of
£249.71		 Optional final
payment
£9,090.00		 On the road
price
£20,000.00		 Term of
agreement
48 months		 Customer deposit
£4,000.00
Amount of credit
£16,000.00		 Cost of credit
£4,826.37		 Annual mileage
5,000		 Excess mileage
8.4p		 Total amount
payable
£24,836.37		 Fixed rate of
interest
9.90%		  
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