How does hire purchase work?

Hire purchase (HP) is a straightforward car finance option. You pay a deposit, then make fixed monthly payments for a set term (typically 1-5 years). Once all payments are made, you own the car outright. Until the final payment, the car is owned by the finance company.

What is the difference between HP and PCP?

With HP, you pay off the full price of the car so monthly payments are higher, but you own it at the end. With PCP, you only pay the depreciation so monthly payments are lower, but there is a large balloon payment at the end if you want to keep the car. HP is simpler and usually results in less total interest paid.

Can I settle HP early?

Yes, under the Consumer Credit Act 1974, you can settle HP early at any time. You will pay the remaining balance minus a rebate of future interest (calculated using the Consumer Credit (Early Settlement) Regulations). After paying half the total amount, you also have the right to voluntarily terminate the agreement and hand the car back.

What is voluntary termination?

Once you have paid at least half of the total amount payable (including interest), you have the legal right to hand the car back under voluntary termination. You will not owe anything more provided the car is in reasonable condition. This is a useful option if you are struggling with payments or the car has depreciated heavily.

Do I need a deposit for HP?

Most HP deals require a minimum deposit of around 10% of the car's price, though some may accept less. A larger deposit means lower monthly payments and less interest overall. Unlike PCP, there are no mileage restrictions with HP.

CarCalcs

HP Calculator — Hire Purchase Finance

Calculate hire purchase monthly payments, total interest, and total cost for car finance.

Car Price

Deposit

APR

Term

How We Calculate This

How HP Payments Are Calculated

HP uses the standard loan amortisation formula:

Monthly payment = P x [r(1+r)^n] / [(1+r)^n - 1]

P = Amount financed (car price minus deposit)
r = Monthly interest rate (APR / 12)
n = Number of monthly payments

HP vs PCP at a Glance

HP: Higher monthly payments, own the car at end, no mileage limits
PCP: Lower monthly payments, balloon at end, mileage restrictions

Frequently Asked Questions

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Last updated: February 2026

All calculations are estimates. Actual figures may vary based on driving conditions, vehicle specifications, and other factors.