HP Car Finance Explained

08 December 2021 Blog

Hire Purchase, also shortened to HP, is a popular form of car finance

Buying a car on finance can often be confusing due to the choice of finance options available. Here we’ll break down what you need to know about HP car finance, so you can make an informed decision on whether this is the right option for you.

What Does HP Mean? And How Does It Work?

HP stands for Hire Purchase. It works by splitting the money you owe on your car (minus your deposit contribution) into equal instalments that you pay each month over the duration of your finance agreement. Once you have made your final payment you will own the car outright.

What Are The Benefits Of Buying A Car Using HP?

Using a Hire Purchase agreement to buy your next car comes with many advantages:

  • Own car outright at the end - once you have made your final payment the car belongs to you
  • No mileage limits - unlike other finance options, you won’t be subject to annual mileage limits
  • Spread the cost of buying the car - split the cost of buying your car with equal payments over the course of your finance agreement
  • No large final payment - there is no final balloon payment, so once you have made your final payment the car is use
  • Low initial deposit - take your car home for a low initial deposit (usually around 10%). You can often also drive away for a £0 deposit (although most car buyers tend to put down 10% as this can help lower the monthly payments you make)

What Happens At The End Of The Finance Agreement?

Once you have made the final payment at the end of your HP finance agreement you will own the car outright, so it is completely up to you what you choose to do with it.

You may keep it as your main car, or you can choose to sell it or part exchange it for a new one.

Can I Settle Early?

You can settle your agreement at any time. All you need to do is contact your finance provider to find out how much you owe (your settlement figure) and confirm when the earliest you can settle.

Will I Be Credit Scored?

As with any finance agreement you enter into, you will be subject to a credit check to gauge your affordability status. The better your current credit score, the more likely you are to be accepted.

What Happens If I Miss A Payment?

We would always advise that you ensure you have enough funds in your account to make your car finance payment each month. If you do miss a payment, contact your finance provider and make the payment as soon as you can. Your finance provider may contact you directly to take the payment.

It is important to note that you may incur fees or additional charges for late or missed payments. Regular missed payments may result in your car being repossessed and will also have a negative impact on your credit score.

If you are struggling to keep up with your monthly payments, contact your finance provider as soon as possible to see if there is any help or support available.

Are There Mileage Limits When You Buy A Car Using HP?

There are no annual mileage limits with HP finance agreements so you don’t have to keep an eye on how many miles you are travelling each year.

We would suggest still keeping an eye on your mileage, especially if you are looking to change cars shortly after your agreement ends. The higher the mileage on your car, the less value it is likely to retain when you come to selling it.

What If I Want To Change My Car Before The End Of The Agreement?

You can change your car at any stage during your agreement. The financial position you are in when you do this will be impacted by the amount of deposit you initially paid at the start of the deal, and your settlement figure compared to what your car is worth as a part exchange.

Generally speaking, the longer you keep your car for, the better position you will be in to change it further along in your agreement.

Are You Ready To Find Your Next Car?

Are you looking to buy your next car on finance? We have a great choice of nearly new cars, all available at unbeatable prices. Browse thousands of cars and apply for finance and complete your purchase online