Hire Purchase

Hire purchase is a simple and popular car finance plan.

It works similarly to leasing in that you usually pay a reasonably small deposit and then hire the car by paying monthly instalments.

Where its slightly different to leasing is that at the end of the contractual monthly payments, you’re given the option to buy the car.

How does it work?

Most manufacturers or dealers will require you to put down a small deposit on the vehicle you’d like to buy. This is typically around 10% of the vehicles value.

You will then pay monthly instalments to cover the remaining value of the car. Generally, hire purchase agreements will last 12 to 60 months.

The hire purchase loan is secured against the vehicle itself. This means that if you fail to meet the repayments of the agreement, the dealer has the right to repossess the car. This also means that you do not own the vehicle until the last payment is made.

The benefits of hire purchase

There are several benefits to hire purchase agreements:

  • Unlike other forms of car financing, hire purchase only requires a low deposit (typically 10% of the vehicle’s value).
  • The interest rates are fixed meaning the monthly payments will remain the same throughout the full term of the agreement. This makes it much easier to budget.
  • You can stipulate the repayment term to fit your budget. Taking the loan over a shorter term will equal higher monthly instalments, whilst choosing a longer term will equal lower repayments.
  • If you’ve paid off more than 50% of the cost, you can return the car early. This is helpful for those who may no longer need the car. It may also be beneficial if you believe that you can find a comparable car elsewhere for cheaper than the remaining balance of the hire purchase agreement.
  • It can be used to find the purchase of a new or used car

The drawbacks of hire purchase

Using hire purchase to finance a car does come with some drawbacks:

  • Due to the lower deposit, the monthly repayments are likely to be higher than other forms of financing.
  • With hire purchase you do not own the car until you’ve made the final payment. This could mean it’s up to 5 years before you become the legal owner.
  • The loan is secured against the car. This means if you run into financial difficulties and are unable to make the repayments, the lender has the right to repossess the car.


If you need a new car, but you don’t have the cash available to provide a large deposit, a hire purchase is one of the best options available.

To get the best deals on a hire purchase, you will need to have a good credit history. If you have poor credit, you may struggle to find a hire purchase at competitive rates.

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