Buying a car with hire purchase

You’ll be charged interest as well. You’ll agree an interest rate at the start of the deal, which will be based on a few different factors including your credit rating and the length of the contract.

You’ll need to make a final payment at the end of your contract to become the car’s owner. This is usually about £100, but you should be able to find this in your contract when agreeing the hire purchase.

Although you won’t own the car, you’ll be responsible for: 

• insurance 
• fuel 
• repairs and maintenance 
• any parking or speeding tickets. 

Make sure you budget for all of these, including unexpected costs such as replacing a tyre. There’s more information in our guide Costs of buying and running a car.

Here’s an example of how a Hire Purchase might look: 

• You want to buy a car costing £20,000. 
• You pay a deposit of £2,000 and agree a three-year contract. 
• Based on your credit rating, the dealer agrees a 15% interest rate. 
• You’ll have to make £18,000 in monthly payments, plus interest. 

Figures will vary, but for this example you pay a total of about £4,460 in interest. Your monthly payments would be about £625. There’s a Hire Purchase calculator on The Money CalculatorOpens in a new window, that can give you an idea of what you’ll pay. 

You can get a Hire Purchase deal: 

• from the dealership selling you the car 
• from an online broker 
• through some banks. 

You can find and compare Hire Purchase deals on: 

• MoneySavingExpertOpens in a new window 
• The Car ExpertOpens in a new window

It’s a good idea to research deals online first, as offers from different lenders can be very different. It’ll be useful to have some numbers to help you negotiate with your dealership. 

Be sure to haggle when buying from a dealershipOpens in a new window, and ask them to lower not just the price of the car, but the Annual Percentage Rate (APR) as well. Lower interest could save you hundreds of pounds. 

You can also haggle over deposits and fees. Don’t be afraid to try different dealers, as even dealers from the same manufacturer can offer different prices. Our guide How to buy a car can help guide you through the buying process.

It’s important that you understand exactly what you’ll be expected to pay and when.  

If you’re unsure about anything, ask your dealer to explain it. They should make everything clear – if they don’t, be ready to walk away. 

Most dealers are more likely to offer you a Personal Contract Payment (PCP) than a Hire Purchase. These are two very different deals, so make sure you’re clear on what type of finance you’re getting.

• How much is the deposit? 
• How much are the monthly payments? 
• How much is the option to purchase fee? 
• How much are you paying in interest? 
• What is the Annual Percentage Rate (APR)? 
• Will you get the advertised APR? Or is this representative APR, meaning you might not get the advertised rate? 
• What are you paying in total? 
• What is the length of the contract? 
• What are the terms and conditions of the contract? 
• Do you need to let your finance company know if you’re taking the car abroad? 
• Does your contract require you to have a certain type of car insurance (such as fully comprehensive)? 
• Does your contract allow you to make modifications to the car? 
• Are there any other fees to be aware of? 

Some dealers will offer optional extras that aren’t normally in a Hire Purchase, such as insurance, breakdown cover and warranties. 

Make sure you understand exactly what your dealer is offering you, and how it’ll affect your monthly payments – and shop around for cheaper deals before saying yes.  

Our guide costs of buying and running a car will help you understand how optional extras might affect the overall costs.

When buying a car you might be offered gap insurance. Make sure you know what this is and if you need it - and always check you’re getting a fair deal.  

You can learn more about gap insurance on MoneySavingExpertOpens in a new window  

You’ll need to pass a credit check when applying for a Hire Purchase. This will be a ‘hard search’, which means a mark is left on your credit file. 

If you’re worried about your credit, view our guide How to improve your credit score.

Like all deals, a Hire Purchase comes with pros and cons. Whether it’s the right deal depends on the kind of car you need, and your own money situation.

Some of these options might be more suitable for you depending on your circumstances. Be sure to get advice and understand the risks of any agreement you make before you decide. 

If you have enough savings to be able to buy a car with cash, this will usually be your best option. You’ll pay no interest and will immediately own the car. 

It’s important to still have some money aside for emergencies. View our guide Emergency savings – how much is enough. 

Think about whether a cheaper car would suit your needs.  

New cars lose their value (depreciate) quickly, so at the end of a Hire Purchase you’ll probably have a car that’s a lot less valuable than it was at the start of the agreement.  

Older cars usually depreciate less, so are sometimes better value in the long run. However, some cars will have higher running costs, and may be more likely to need repairs and maintenance. 

There’s lots to consider when working out overall car costs. Our guide Costs of buying and running a car talks about this in more detail. 

Another option is a Personal Contract Hire (PCH). You won’t be buying the car with this option, but your monthly payments will be a lot lower. 

If you’ll struggle to afford to buy a car outright, hiring might be a better option. 

If you want to own the car outright, you could get a personal loan to pay for it. 

You’ll need to compare what you can borrow and how much you would be paying back. You might find that a loan means you’re paying less in interest than a Hire Purchase depending on what deal you can get.  

Be aware that a personal loan might not be secured against your car, so if you struggle to repay it your lender won’t simply take your car away to make things even. 

A Personal Contract Payment (PCP) is another type of car finance. You’ll:  

• put down a deposit
• make monthly payments
• have the option to make a final large ‘balloon payment’ at the end of your contract, or 
• hand the car back, sometimes as part exchange for a new PCP. 

These monthly payments will be lower than a Hire Purchase, but the final payment will be much higher.  But you have the option not to pay the balloon payment if you decide not to buy the car at the end of the contract. 

If you need to end a Hire Purchase early, you have a few options: 

You have a legal right to return the car and end the contract if you’ve made at least half of your payments. This is called ‘voluntary termination’. 

If you decide to return the car, tell your finance company by letter or email, and keep a copy. You’ll need to make it clear you’re returning the car and ending the agreement.  

You can use this letter template on National DebtlineOpens in a new window to apply for voluntary termination.  

If you don’t make the dealer aware, they’ll see it as you missing payments, and this could affect your credit rating. 

Your dealer will lose out, so they might try to make this difficult and drag out the process. Just remember that you’re acting within your rights according to the Consumer Credit Act. 

For instance, they might claim that there’s damage to the car beyond fair ‘wear and tear’. It’s worth checking what’s seen as fair ‘wear and tear’ when agreeing your Hire Purchase, but there’s also a helpful guide to fair wear and tear from the British Vehicle Rental and Leasing Association (BVRLA)Opens in a new window, or you can order a hard copyOpens in a new window

Speak to your dealer about ending the Hire Purchase early. They’ll give you one final larger payment to make, and then the car will be yours. 

There’s a helpful leaflet from the Finance and Leasing AssociationOpens in a new window which explains what happens when you repay a loan early.

It’s important to talk to your car finance company if you’re finding it difficult to keep up with payments. 

They might be able to extend your agreement, which can lower your monthly payments. They can also consider other arrangements, so having a conversation with them can be a good place to start. 

It’s important to have this conversation before missing any payments. If you don’t, your dealer may view it as you defaulting on your payments, which could affect your credit rating.  

A Hire Purchase is a secured loan – this means that the car can be taken back by the lender if you aren’t keeping up with your payments.  

You should check your contract for details on what the lender’s process is. If you’re early into your contract, they often won’t need a court order to repossess your car.  

If you’re struggling with debt, it’s a good idea to speak to a free debt adviser. 

Find out where you can get free debt advice.