Advantages and Disadvantages of Hire Purchase Car Finance

Buying a car with Hire Purchase car finance is a huge financial commitment that you need to be prepared for. One of the ways to know if Hire Purchase is the best type of car finance for you is to finding out its pros and cons. This way, you’ll be able to weigh up the Hire Purchase advantages and disadvantages and arrive at a sound decision on whether to push through with financing a car or choose a different route to buy the vehicle you want. 

If you prefer, why not check out Jade's video on the topic....


What is Hire Purchase Car Finance?

A Hire Purchase car finance agreement is when you buy a car without having to pay the full price in cash. Instead, you pay an initial lump sum called a deposit followed by a series of monthly instalments that you have to pay for the whole duration of your contract with the lender. At the end of your car finance agreement, the ownership of the vehicle will be transferred to you. And as the legal owner of the car, you’re then free to keep it, modify it, or sell it if you want. 

Advantages of Hire Purchase

Budget-friendly Way to Buy a Car

With HP car finance, you don’t have to use up all or most of your savings just to buy the car you want. This type of finance allows you to pay only part of the car’s price through your initial deposit and then you can immediately drive the vehicle home. 

After that, you can effectively budget your income so that you can set aside money for your monthly repayments and still enjoy a comfortable lifestyle. Plus you’ll still have enough in your bank account for car-related costs like insurance covers, taxes, parking fees, fuel, and also emergency expenses for unexpected repairs.

The Deposit Amount Can Be Flexible

Most car finance companies require at least a 10% deposit on the car, however, the deposit amount can be as big or as little as you want. It depends on what you can afford to pay upfront. You can even get zero deposit deals if you don't have the up front cash available but expect higher monthly payments of course. 

For more affordable cars and used vehicles, the deposit doesn’t have to be substantial but for luxury cars, it’s more likely that you would need to pay more than just 10% so that you won’t have trouble catching up on the monthly instalments. 

Many experts suggest paying a big deposit so that you won’t have to pay as much for the repayments every month. If you can afford it, a substantial deposit can be beneficial for you since you’ll save more money in the long run. 

The Monthly Instalment Amount is Fixed

Hire Purchase car finance typically has a fixed-rate interest. It means the interest applied to your loan won’t change for the whole duration of your agreement. And since the interest is fixed, so will the monthly instalment amount. 

You don’t have to worry about how much your payment for the car will be from one month to the next. You can easily budget your income every month so you can make your Hire Purchase car finance payments in full and on time every time. 

The Car is Yours at the End of the Contract

Once you’re done with all the payments and you’ve reached the end of your car finance contract, and you have paid the option to purchase fee the car is yours! Unlike PCP car finance agreements where you have to pay the final balloon payment to own the car, a Hire Purchase deal means the ownership of the vehicle will be transferred to you immediately. 

There might be some administration fees so that the car finance company can process the paperwork but it’s nothing to worry about because it’s typically a very small amount. with Carmoola it is just £1!  If you choose a short repayment term like two to three years, time will just fly by and before you know it, the car is fully yours. 

Disadvantages of Hire Purchase

The Car Isn’t Yours Until the Last Payment

With HP car finance, even if you’re the one using the vehicle, the lender is still its legal owner until you’ve settled all the payments. This means you can’t change anything that would be impossible to undo or modify the car in any way.

Changing the car or upgrading its parts will completely affect its value and it will be a lot of trouble for the car finance company to calculate how much the car is worth. If you do modify the car, you might be charged with certain penalties because you’d be breaking your agreement with the lender. 

You Can’t Sell the Car

Since you’re not the legal owner of the vehicle, you cannot legally sell it as well. When you finance a car with Hire Purchase, you are given the freedom to use it. HP doesn’t even come with mileage limits so you can take it for long drives across the UK if you want. However, you do not yet have the legal right to assume ownership and place it on the market. This isn’t only against the agreement you’ve signed with the lender but it is also illegal. 

HP is More Expensive than PCP

HP payments cover the full price of the car so expect a higher monthly repayment amount. With PCP, your payments go toward the predicted depreciation of the vehicle during your contract term so you’re only paying for a portion of the car’s value. If you prefer cheaper monthly instalments and would like to have options on what to do with the vehicle at the end of the agreement, PCP would most likely be the better fit for you. 


Hire Purchase car finance has its own set of advantages and disadvantages. While it’s a good finance product overall, it still has some downsides that you need to consider before signing up for an HP car finance deal. It’s crucial to know the pros and cons of Hire Purchase deals so you can be ready for a big financial commitment like financing a car. 👍