Fixed monthly payments
Know what you’ll pay each month from day one
No need to watch your miles
Drive without checking mileage limits or worrying about fees
Own the car at the end of the agreement
No big final payment before the car becomes yours
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Hire purchase (HP) – also known as HP car finance – is a type of finance that lets you spread the cost of buying a car, typically over one to five years.
You put down a deposit (usually 10% of the price) and make monthly repayments, plus interest, until the full value of the car is repaid. Pay a small final fee known as the ‘option to purchase’ and the car is yours to keep.
10% is standard, although it isn’t always necessary. But the higher your deposit, the less you need to borrow.
Your monthly payment will depend on the size of your deposit, the cost of the car, the interest rate and how long you sign up for. Make sure you never borrow more than you can afford to pay back.
After your last monthly repayment, you pay a final one-off fee of around £10-£200 and become the owner of the car. The fee covers the admin cost of transferring ownership to you.
Here’s an illustrative example of how the costs might break down if you bought a car on hire purchase with a five-year deal. After your final repayment, you pay the option to purchase fee and take ownership of the car.
Cost of car | £12,000 |
10% deposit | £1,200 |
Amount borrowed | £10,800 |
Borrowing period | 5 years (60 months) |
Fixed APR | 9.9% |
Total cost of interest | £2,820 |
Monthly payment | £227 |
Total amount payable | £14,820 |
Flexible payments – you choose a repayment period that suits you, typically from one to five years. Spreading the cost can help you get a newer or better vehicle than you’d otherwise be able to afford.
No mileage restrictions – you can drive as many miles as you like, unlike with personal contract purchase (PCP).
You only pay a small fee to own the car – after your final repayment, you only pay around £10 to £200 to become the owner. With PCP, you have to make a large balloon payment (often £1000s) to own the car outright.
High overall cost – monthly payments tend to be higher than PCP finance and leasing deals over the same agreement period.
Car modifications are off limits – you can’t modify or sell the car until you’ve paid it off, unless you get permission from your finance provider.
Delayed ownership – you won’t own the car until the option to purchase fee is paid. If you can’t meet your repayments, the finance provider can seize the car.
Limited options to switch cars – you may have to pay a fee if you want to change to a different car before the end of the agreement.
Here’s what to consider to get the best HP deal for you:
Shop around: online HP brokers may be able to beat the dealership’s offer.
Check the APR (annual percentage rate): this represents the total cost of borrowing for a year, including interest and standard fees.
Watch out for representative APR: lenders have to offer it to at least 51% of applicants, but you might be charged a higher rate depending on your circumstances and credit history.
Compare overall costs: check for additional charges, such as a broker fee or admin fee.
Once you've made your final payment, you have to pay an ‘option to purchase’ fee before the car is officially yours.
The car automatically becomes yours after you’ve made your final payment.
The car never belongs to you. You lease it for a set period, paying monthly instalments, then either return it to the dealer or arrange another lease agreement.
When you apply for an HP loan you'll be subject to a credit check. This is a hard search that leaves a mark on your credit file.
Your credit score will play a big part in deciding:
Whether you’re approved for the loan
What APR you’re offered
How much you can borrow.
If your score is low, it's worth taking steps to build your credit score before applying to borrow.
Bear in mind
A brand-new car loses a chunk of its value the minute you drive it off the forecourt and could depreciate by 15%-35% by the end of the first year
Understand the different car finance options so you can choose the best product for you
If you fail to keep up with your payments, you’ll break the terms of your finance agreement. That could mean paying additional charges. And because your finance deal is secured against the car, the provider can repossess the vehicle.
Some lenders might allow you to hand back the car and end the HP agreement, but this may come with extra charges.
If you’re worried about missing a payment, speak to your lender as soon as possible to discuss your options.
Yes, it’s possible to change your car while you’re still tied into a hire purchase contract. You have two options:
1. Trade it in for a new model: car dealerships will usually offer you the chance to trade in your car and swap it for a different model. But you’ll need to settle your existing finance. Your current car’s value can contribute to this. Anything left over could be used towards the new car.
2. Settle the agreement: this is simply ending your hire purchase agreement early. You’ll normally have to pay an early settlement fee, which will be listed in your HP loan agreement. You’ll then own the car, which you could sell and use the money to buy a different one.
No, you can’t sell a car that you’ve purchased on an HP contract. This is because you don’t own the car until you’ve settled the agreement. You’ll need to settle the agreement early before you can sell it.
You might be able to modify a car on HP finance. You’ll need to check the terms of your hire purchase agreement and speak to your finance provider first.
You’ll usually be able to pay off your hire purchase deal early, but you’ll likely need to pay an early settlement fee. This fee should be laid out in your HP loan agreement.
If you buy a car on a hire purchase deal and there’s something wrong with it:
Return it to the dealer and ask for it to be repaired
If they refuse to repair it, contact your HP finance provider (though this may be the same company).
Your finance provider legally owns the car until you’ve settled your agreement. This means it's responsible for the car and any issues it might have.
Charlie is a senior commercial leader with close to a decade of experience across the UK’s leading personal-finance and comparison platforms. Before joining Compare the Market as Head of Commercial in 2024, he held senior commercial roles at TotallyMoney and MoneySuperMarket Group.
1 Based on the % of respondents claiming they have used Compare the Market in the last 12 months vs. other leading PCWs. Source: Savanta BrandVue Financial Services, National Representative Survey of 12,257 respondents (June 2026)
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
