Hire Purchase (HP)

What is HP?

Essentially, a Hire Purchase agreement is a hire agreement between two parties, a customer and a finance company, where the customer can choose to buy the vehicle at some point during or after the agreement. Finance companies hire the vehicle to customers for a set period of time at an agreed monthly payment. The Option to Purchase Fee is an additional fee a customer must pay to gain ownership (title to the car). It is necessary, however, for the customer to have paid off everything else in order to get title to the vehicle.

Hire Purchase with a balloon payment is also available and very similar to a standard Hire Purchase agreement, but like a PCP a certain amount of the loan is deferred until the end as a final “balloon” payment to reduce the monthly payments.

Early Settlement

By paying the balance of finance outstanding and the Option to Purchase fee to the lender, the customer can settle the HP agreement at any time. In the event that the customer settles the outstanding balance before the agreement end date, the lender may offer a rebate of the interest. In a regulated credit agreement, the rebate amount will be calculated according to provisions outlined in regulations made under the Consumer Credit Act 1974 (although the lender may be entitled to compensation in certain circumstances). The consumer may also have the right to voluntarily terminate the agreement before the final payment is due and return the goods under the Consumer Credit Act of 1974 if the agreement is regulated.

End of Term

Once the HP contract has ended and all the contracted payments have been made, the customer pays an option to purchase fee enabling them to purchase the vehicle's legal title. It is possible for the customer to decide not to pay the option to purchase fee and return the vehicle to the finance company if they so desire, regardless of the fact that the vehicle has been effectively paid for. The customer may sell the vehicle once they have taken legal title.


HP is one of the most often used products in the auto finance sector.
The customer's loan is secured by the vehicle he or she buys. Until the Option to Purchase fee is paid, the vehicle's title stays with the credit company. After then, the title is transferred to the customer.
Agreements are often constructed in a straightforward manner, with terms ranging from one to five years.
Deposits and time periods can be adjusted to fit a customer's budget.
Keeping title until the end of the arrangement provides extra protection to lenders in the event of payment issues.
Because the lender holds title until the consumer has fully paid off the agreement/vehicle, it can give the customer more favourable terms and conditions.
Consumer credit agreements might be regulated, exempt, or uncontrolled.

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