ESTABLISHED IN 1904

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How Does Hire Purchase (HP) Work?

Hire Purchase explained

What is Hire Purchase?

A Hire Purchase agreement, or HP, is a vehicle finance arrangement where you pay a relatively low deposit and hire the car with the option to buy it at the end of the contract. HP will be available to most customers - even those with poor credit ratings. This is because the loan is secured against the car, with the vehicle being used as collateral.

Hire Purchase is very similar to a personal loan when you're paying it, as you'll make monthly payments over a time period of between 12 to 60 months with a fixed interest rate. However, there are two key differences. As the name suggests, you essentially hire the car over the period of the contract and purchase it at the end. Therefore, because you are hiring the car, the finance company are the ones that own the car while you're paying the finance off. It is only once you have made all of the payments that ownership is transferred to you.

As previously mentioned, the loan is secured against the car which means that the risk of granting the finance is lower for the lender than it would be with an unsecured personal loan. This also means that if you are unable to keep up with the monthly payments, the car could be taken away by the finance company to help you pay off the debt.

HP is ideal if you want to own the car outright at the end of the agreement and you like to budget and know the exact payment amount that will be coming out of your account each month. With every Hire Purchase agreement you must have fully comprehensive insurance.

How does Hire Purchase work?

Before you decide to enter into a Hire Purchase agreement, you should find the car that you want to buy so that you know the amount you need to borrow. Once you have done this you can:

1. Choose a deposit that suits your budget. At Wilsons we don't have a minimum deposit amount, but you can choose to put down a deposit of any size. Depending on the car and the deal available, you may also be entitled to receive a deposit contribution to reduce your total borrowing.

2. Select a comfortable number of instalments and monthly payments. Here you are agreeing the amount to be borrowed based on the price of the car less your deposit. You will need to decide how much you can afford to pay a month which will determine the length of your agreement. You will pay interest on these payments, but the rate of the representative APR is decided at the start of the agreement and is fixed for the duration of the plan.

3. At the end of your instalments you will own the car. You will take full ownership of the car from the finance company. Alternatively, you can part exchange the car, pick a new model and start a new hire purchase agreement, subject to status.

New number plate on the front of a car
Drive away in a brand new car

Hire Purchase Example​

To better understand how Hire Purchase agreements work, here is an example:

Let's assume you are buying a car valued at £14,000

  • You pay a 10% deposit of £1,400 which leaves £12,600 outstanding
  • You decide to borrow the £12,600 over 3 years
  • You get a 5% APR deal, meaning that you would make payments of £378 a month
  • After three years you take ownership of the vehicle by paying the final monthly instalment


To buy the car you would pay:

Deposit: £1,400

Loan: £13,608 (£378 multiplied by 36 months)

Total: £15,008

Important Information to Remember

When it comes to entering a Hire Purchase agreement, it is important to remember that you don't actually own the car until you have made the final payment. This means that you are not allowed to make any modifications, sell the vehicle or get rid of it while your agreement term is still running. 

If you find you're able to pay off your Hire Purchase agreement earlier than planned, you can do so with no penalties or extra charges. Once you're paid up, at the end of your agreement or earlier, you take full ownership of the vehicle.

Hire Purchase Pros

1. Flexible repayment terms from one to five years to help suit your monthly budget

2. No deposit required and may be eligable for a dealer deposit contribution

3. Fixed interest rates so you know exactly what you're paying every month for the duration of the agreement

4. Simple to arrange and understand

5. You would own the car once all payments have been made

Hire Purchase Cons

1. You don't own the car until you've made your final payment

2. Monthly payments are higher than PCP and leasing deals

3. You cannot sell or modify the car over the contract term without the finance company's permission

4. If you fail to keep up with payments, the finance company can repossess the car


Find Out More

To find out more about your Hire Purchase options and choose a new model, please contact our friendly and helpful staff at Wilsons today. To start an application for a hire purchase agreement simply call us and request a quote or enquire and we'll get in touch.

Call 01372 736 000 for more information about Hire Purchase

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