What is HP Car Finance?

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Hire Purchase (HP) car finance is a common way to finance a car.

When you buy a car on HP it gives you the option to own the car at the end of the agreement, with the cost of the car (minus any deposit you have or part exchange) spread over the full length of the loan. The length of the loan (the term) is fixed, typically somewhere between three and five years but there are lenders who will offer HP car finance over terms of up to seven years.

There are a couple of important points to consider though:

Firstly, as the loan is secured against the car you are buying, what this means is that the lender owns the vehicle until you have made all the payments due. If you fail to make the repayments, the lender has the right to repossess the vehicle.

With HP car finance you don't legally own the car until you make the final payment, which will include an 'Option to Purchase' fee. This fee is charged by lenders for transferring the title of ownership for the car into your name. The amount charged can vary, but is often as little as £1 or £10. You do have the option not to pay this fee and hand the vehicle back to the lender but as the fee is nominal this doesn't often happen!

Secondly, although the lender legally owns the car until you've made that final payment, as the registered keeper, you are responsible for things such as the DVLA Vehicle Tax, insurance, servicing, and maintenance. However, since you don't own the car, you cannot sell or modify it without the lender's permission.

How does HP car finance work?

Hire purchase is nice and easy to understand, the contract you enter into with the lender has three components:
1) You pay a deposit (which can in some case actually be zero)
2) You'll then pay a fixed number of monthly payments
3) At the end of the agreement you can pay the nominal 'Option to Purchase' fee to take ownership of the car
Monthly Payments
Option To Purchase Fee
A diagram showing how HP car finance works

Is HP car finance right for me?

A hire purchase agreement could be right for you if:
● You want to keep your car the at end of the contract (after you've paid the small 'Option to Purchase' fee)
● You don't want to worry or think about mileage restrictions
● You prefer to spread the full cost of the car evenly over 3 to 5 years (or possibly up to 7 years!)
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