What is HP car finance?

What is HP car finance?

Thinking about buying your next car on finance? It's worth knowing more about HP agreements. Alongside PCP, this is one of the most common ways people buy cars on finance and spread the cost of a big purchase.

In this guide, we'll answer some of the key questions you might have - what is HP finance? What does it mean? How does it work? - and more.

What is HP finance? 

HP stands for Hire Purchase and it's a type of car finance that lets you spread the cost of a new or used vehicle. You're essentially taking out a loan that's secured against the vehicle you're buying. Once you've paid off the balance, you're the legal owner of the car and you don't have to keep on making payments.

What does Hire Purchase (HP) finance mean? 

The term 'Hire Purchase' explains some of the process involved with a HP agreement. Until you've made your final payment, you're technically hiring the car from your lender. You will be the registered keeper during this period but you won't be the registered owner until you pay off the balance in full.

How does HP car finance work?

The process for buying a car on finance with HP is quite simple. You can expect the following steps with most lenders:

1. Pay a deposit 💰

You put down a deposit (a percentage of the total value) for the car you want to buy and your finance provider lends you the rest you need. You might not need a deposit in some cases.

2. Get the car 🚗

With the money you need, you can buy the car you want and spread the cost. In some cases, a dealership will offer its own direct HP agreement while, in others, a car finance company will pay the dealership directly on your behalf. While you're the registered keeper, you'll be responsible for insurance, servicing, repairs, and anything else associated with the car or your driving.

3. Make fixed payments 📅

You'll make either monthly or weekly repayments, depending on your lender, over the period you agreed to. This amount should be fixed and clearly stated when you sign the agreement. You'll likely be charged interest on these payments, which means you'll pay back more than you borrowed.

4. You're the owner 🙋🏽‍♀️

Once you've made the final payment, you'll be the legal owner of the car, not just the registered keeper. You'll have the freedom to keep it, sell it, exchange it or whatever else you want to do.

"HP car finance offers a simple and straightforward path to owning your car. The process is transparent and easy to understand - you choose your car, agree on a term and make affordable monthly payments. Knowing you'll be the owner at the end gives you full control. You don't have to worry about hidden fees or surprises along the way, making it a reliable and stress-free option."

- Craig, Head of Underwriting

Pros and cons of HP car finance

It's important to consider the positives and negatives when choosing car finance. These are the key angles for HP agreements:

Pros

• Easy to manage: HP is about as simple as it gets with car finance. You borrow what you need for the car and pay it back in fixed instalments over the agreed term. With fixed payments, it'll make budgeting easier too. 
• Spread the cost: if you can't afford to buy your new car outright, HP finance allows you to spread the cost and get the keys sooner. You won't have to make a big balloon payment like with a PCP deal either. 
• Simple path to ownership: even if you don't legally own the car straight away, you'll be guaranteed to once you've made the final payment. It should still feel like yours until then. 
• Flexible repayment terms: many lenders offer flexible terms so you can spread the cost over a period that suits you and your budget.

Cons

• Subject to status: as with any credit agreement, your chances of being approved are linked to your credit history, income, and other key factors. 
• Don't own the car until after the final payment: you'll only be the registered keeper of the car until you pay off the money you borrowed plus interest. If you fail to keep up with repayments, the lender could repossess your vehicle. 
• Higher monthly payments: compared to PCP deals, the monthly payments are higher on average for cars of a similar value. However, PCP doesn't always result in you owning the car. 
• Less flexibility: if you like to change cars every few years, a HP deal might not give you the freedom to do that as easily compared to a PCP finance agreement.

Who offers HP car finance?

You can get HP car finance directly from a lender like us or through the dealer you're buying your vehicle from. Choosing a car finance lender means you're free to buy from any dealership in the country*, giving you a massive range of choices.

*there are some dealerships that finance companies won't work with because of poor customer feedback or negative past experiences.

How is HP different from PCP?

Many people get HP and PCP deals mixed up - understandably - so what is PCP car finance? It's another type of finance agreement that different lenders and dealerships offer.

The main difference is that you don't automatically own the car once your term expires. You can either make a sizeable 'balloon payment' to buy the car outright or send it back to the dealer. It's a flexible option, if that's important to you, but many people prefer the security of owning the car in the end.

To find out more about the differences between HP and PCP car finance, check out our other handy guide. 

Get a quick Hire Purchase quote today

If Hire Purchase sounds like the right option for you, come and explore our car finance options. We offer Hire Purchase car loans from £2,000 to £15,000, over 18- to 61-month terms. It's a simple process from start to finish - get a quote in minutes, choose your repayments, sign the paperwork, and you're away!

At First Response Response, we're an award-winning car finance company, recommended by 98% of customers. As five-time winners of Feefo's Platinum Trusted Service Award and Best Car Finance Provider four years in a row, we can help get you the keys to your new car.