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How to Calculate the Total Cost of a Hire Purchase Car Loan

You might be sitting there wondering, what is is a hire purchase car loan total cost? 🤔 The total cost of a car Hire Purchase will depend on a number of factors such as the total amount loaned, the interest rate applied, fees and charges included, and how long the repayment term is going to be. In addition to that, the interest rate will be based on other factors such as your credit score and whether you put down a deposit. So let’s explore each of these factors and learn how to calculate the Hire Purchase car loan total cost. 👍

You can learn lots by watching the lovely Jade as she explores the topic too....


How Much Can I Borrow in Car Finance?

The amount you can borrow to finance your car depends a lot on the available offers from the lender. For example, with Carmoola, Hire Purchase loans can be as low as £2,000 to as high as £40,000. If you were to buy a brand new SUV, you might need a big loan amount, however, if you consider financing a used hatchback instead, then you might only need to borrow £10,000 to £15,000. 

What is the Average Car Finance Rate?

It would be difficult to give an exact figure when it comes to the average interest rate for car finance. It’s because each borrower’s credit history, score, and financial situation are carefully evaluated before the lender offers a personalised car finance interest rate. Car finance companies may advertise representative APRs or annual percentage rates but the actual rate applied to a loan can be different from the figure on the ads. 

With Carmoola, the representative APR is 14.8% and if your loan amount is £10,000 and your repayment term is 54 months, your monthly instalment amount would be £250. While 14.8% is the representative APR, Carmoola actually offers personalised APRs ranging from 6.9% to 24.9%, depending on the factors evaluated on your car finance application. 

How Long Should I Finance My Car?

Most Hire Purchase car finance agreements last for 12 to 60 months. This means paying monthly instalments for one to five years to own the financed car. On average, drivers choose a repayment term of three years and that’s actually a good length according to many financial experts who suggest not taking loans longer than four years

If you can afford to pay more for the monthly instalments, then you can choose a short-term car finance agreement. This way, you can save money because you’ll be paying less interest overall. However, if you want to make the monthly repayment amount as affordable as possible, then you can take a long-term Hire Purchase deal. It all depends on your budget and how much you’re willing to set aside for the car repayments each month. 

Calculating Hire Purchase Car Loan Total Cost

At the start of your HP car finance contract, you usually have to pay an initial lump sum called a deposit. The amount can be as small or as big as you want but many drivers aim for at least 10% of the car’s value. If you can pay more, the better it will be because then, your loan amount won’t be as big so you also won’t pay as much interest than if you were to get a no-deposit car finance deal. 

To calculate the cost of Hire Purchase, you’ll need to know the interest rate that will be applied to the amount you’re borrowing. When shopping for Hire Purchase deals, look for the representative annual percentage rates and not just the interest rates. The APRs include other fees apart from the interest rate so it will give you a better estimate of the cost of financing a car. Once you know the deposit amount and the APR, you would then have to determine the repayment term or the length of your car finance agreement. 

When you know the amount you want to borrow to finance a car, subtract the amount you’re ready to put down as a deposit. For example, the car costs £15,000 but you can pay a deposit of  £5,000. The difference will be  £10,000, and you can then apply the APR figure to the difference to get the cost of borrowing money from the lender. For an APR of 4% and a term of three years, the total cost of financing a car with hire purchase would be  £11,200. So, you pay back the principal amount of  £10,000 plus interest of  £1,200 through monthly instalments for three years. 

It’s important to remember that with car finance, you borrow a certain amount which you then pay back in instalments every month plus interest. The monthly repayment amount will be the same but as you go through with your car finance agreement, making payments on time each month, you’ll pay more towards the amount borrowed or the principal amount and less on the interest. 

Get an Estimate Fast with an HP Calculator

Calculating the total cost of financing a car with Hire Purchase can be a bit confusing and tedious. It’s a great thing that you don’t actually have to calculate it manually because you can simply use a car finance calculator! With the Carmoola calculator, you can manipulate the figures like your budget, the repayment term, and even the APR. It’s easy to get estimates of how much HP car finance costs as well as the amount for the monthly instalments. You will then know how much it will cost to buy a car with hire purchase per month. 

Do note that since the resulting amount from the car finance calculator is just an estimate, based on the representative APR - the actual cost of financing a car might be different. The APR that will be applied to your loan depends on a number of factors like your credit score and credit history, amongst others. Before signing a car finance agreement, make sure that you check the breakdown of the cost to know where your payment each month will go and whether there are any fees and charges to be settled before you can own the car. Do read your contract carefully before you sign on the dotted line.... 👍🚘

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