What is HP car finance and how does it work?
HP (Hire Purchase) car finance is perfect for those who want to own the vehicle at the end of their agreement. HP loans typically involve customers making an initial deposit, followed by regular monthly payments until the total cost of the car has been paid off in full. The loan is secured against the vehicle, meaning you won’t own the vehicle until the last payment has been made.
Ultimately, HP car finance works by spreading the cost over multiple years which helps reduce pressure on monthly outgoings. The main benefit being that once all payments are made, you will gain full ownership rights over your vehicle.
Is HP car finance the right option for me?
HP car finance can be a great solution if you are looking to spread the cost of your purchase over several months and want to avoid paying an upfront lump sum. However, it is important to consider whether HP car finance is the right option for you.
It’s worth noting that taking out car finance via HP will affect your credit score and future borrowing capabilities, so it’s a good idea to make sure you keep up with repayments throughout the term of the loan. If you miss payments, it can damage your credit rating which could make applying for other types of finance difficult in the future. By doing thorough research into different car finance options and making sure that this type of loan is suited to both your current finances and long-term goals, then you’ll be in a better position to decide whether HP is the right option for you.
Advantages & disadvantages of HP car finance
HP car finance offers distinct benefits but also has its drawbacks. A key advantage is the stability offered by fixed interest rates, ensuring no unexpected cost increases during the loan term and facilitating straightforward budgeting. This predictability allows buyers to plan their finances confidently, knowing all costs upfront and ensuring timely repayment without stress.
On the downside, HP car finance typically comes with higher interest rates compared to other financing options, leading to a higher total loan cost. This can make HP car finance a less economical choice for consumers. Furthermore, the finance agreement is secured against the vehicle, meaning there’s a risk of repossession if repayments are not made. This adds a layer of risk for the buyer, as failing to meet payment obligations can result in losing the vehicle.
| ✅ Predictable payments | ❌ Costly option |
| ✅ Budget-friendly | ❌ Repossession risk |
| ✅ Stress-free financing | ❌ Financial burden |
Frequently asked questions about new car finance
What does hire purchase mean?
Hire purchase is a form of financing which allows you to buy goods or services and pay for them in instalments, over a set period of time. This type of finance is popular in the UK, as it provides individuals with greater flexibility when it comes to purchasing items that may normally be beyond their financial reach.
The interest rate charged on hire purchases varies depending on the lender and other factors, although it tends to be higher than rates applied to other forms of borrowing.
Once all payments have been made and the balance has been settled, ownership of the goods or service will transfer from the lender who provided it on hire purchase terms, to the customer (you!).
What documents will you need when applying for HP car finance?
When applying for HP car finance in the UK, you will need to provide several documents in order to be considered. These documents may include:
• Proof of your identity (such as a valid passport or driving licence)
• Address history
• Marital status
• Employment status and history
• Income & evidence of your salary slips/bank statements
• Amount you wish to borrow
It is important to provide this information accurately in order to give yourself the best chance of being successful with your application.
Your credit score may also be taken into consideration when applying for HP car finance, so it is important to check that your credit report is up-to-date and does not have any negative ratings against it.
Can anyone get HP car finance?
Anyone looking to take out HP car finance in the United Kingdom must satisfy all relevant criteria before they qualify. This includes having a steady source of income, being over 18 years old, and having a minimum of three years’ address history in the UK.
Rates and terms can vary depending on an individual’s financial circumstances but making a larger deposit is one way to reduce the amount owing each month or overall cost of the loan.
Can you get HP finance with bad credit?
It is possible to get HP finance with bad credit in the UK? There are lenders that specialise in bad credit HP finance, who will consider customers even if they have a history of adverse credit on their record.
The key thing to bear in mind when looking for bad credit HP finance is that the terms and conditions associated with an agreement are likely to be less favourable than those offered to people with good or excellent credit ratings. The interest rate applied is usually higher than standard and customers with bad credit may also find that they have a smaller amount available to borrow.
Can I sell a hire purchase car?
If you are still within the loan term, you cannot sell your hire purchase car. You can only sell it once all payments have been made and the vehicle is rightly yours. If you wish to sell it sooner than that, you might be able to request an early settlement with your lender.
What happens if I can’t afford my HP car payments?
In most cases, you can terminate your agreement, providing you haven’t been issued with a default notice. Once terminated, you will have to give the car back and will not get any of your money back.If you can’t afford your HP car payments but wish to keep the car, you might be able to refinance the car. This involves taking out a new finance agreement, usually with a longer repayment period.
What’s the difference between HP and PCP car finance?
The main difference between HP and PCP finance is what happens at the end of your agreement. With HP finance, you pay off the full cost of the car and then own it outright. With PCP finance, you can walk away and get a different car at the end. If you wish to keep the car, you’ll have to pay a balloon payment.
