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Car Finance

Car Finance
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Hire Purchase (HP) & Dealer Finance

Hire purchase or HP schemes have been around almost as long as the motor trade. HP is the most straightforward dealer finance scheme. It's most common at independent used car dealers, who sell hire purchase packages on behalf of finance companies. Dealers earn commission for this, so may actually be keener to arrange hire purchase deals than to take a wedge of cash.

Hire purchase often looks attractive to less affluent used car buyers who don't qualify for personal loans. A deposit as low as 100 is followed by fixed monthly instalments (technically hire fees) over a two- to five-year term, and a final 'purchase option' payment. Only then is the car yours.

The other common dealer finance scheme is the 'conditional sale' agreement. It's similar to HP but can offer more flexible interest rates and repayment terms. A larger deposit will be required, and the 'conditions' are that the car is correctly maintained and insured (in case the lender has to repossess it!), and that ownership only passes to you when you pay the final instalment

INSIDER INSIGHT:

  • Interest rates can be high on low-deposit HP or conditional sale plans. Check the total cost of the plan - deposit + all monthly payments + final purchase option payment - against the price agreed for the car.
  • Go to OWN OR LEASE? for non-ownership finance plans.