Do Hire Purchase Car Loans Have a Balloon Payment?

You might have seen a car finance ad about Hire Purchase deals that come with balloon payments. But aren’t balloon payments a feature of Personal Contract Purchase car finance? Yes, however, there is a type of HP car finance that also offers balloon payments where you can pay a lump sum at the end of your agreement to own the car. Sounds a lot like PCP? Don’t worry, if you're looking for a "what is a hire purchase balloon payment"  blog, you have come to the right place - let’s understand more about Hire Purchase balloon payments in this article!

Hire Purchase Car Finance

Applying for Car Finance

Let’s start by defining what Hire Purchase is first. HP is a type of car finance where you can buy a car without paying the full price. The first step in making this happen is to apply for car finance from a reputable financial institution like a bank, car dealer, or specialist car finance company. 

The lender will then assess your application so they can determine the interest rate that they’ll apply on your loan. They will then draft the car finance agreement for you to read, and if you agree to the terms and conditions stated there, you only have to sign it and the contract commences. 

Paying a Deposit

Before you are able to drive your dream car though, you might be required to pay an initial deposit upfront. Not all car finance companies ask their customers this, especially if they offer a no-deposit car finance deal. 

But typically, a zero-deposit deal is only available to borrowers with really strong credit scores. If you have an average credit score, it’s important that you’re prepared to pay at least 10% of the car’s price. But if you can afford to pay more, it will be better for you because you’ll be borrowing less money and paying less interest in the long run. 

Paying the Monthly Instalments

After paying the deposit, you can start using the car for the rest of the contract term as long as you pay your monthly instalments diligently. Missing your monthly repayments can affect your credit score negatively and you might have trouble securing another finance product in the future because lenders will perceive you as a high-risk borrower. So do make sure you can really comfortably afford the monthly repayments before you commit.

Also, if you keep on missing your payments or ultimately defaulting on your loan, the car finance company can repossess the vehicle. This means they can take the car back and you won’t get refunded for any of the payments you’ve already made. If you do keep up with your payments until the end of your contract, the car will be yours when you’ve made your last payment. 

So usually, with most HPs, at the end of the term you pay the final option to purchase fee and the car is yours!

What is a Hire Purchase Balloon Payment?

Now that we’ve covered what a regular Hire Purchase car finance is, and if you're wondering what is a hire purchase balloon payment, let’s understand exactly what Hire Purchase deals come with balloon payments. There are two main similarities between HP balloon payment and the ones PCP deals have. 

The obvious one, of course, is that they’re called by the same term referring to the final lump sum payment. The second similarity is that these balloon payments are to be paid at the end of your HP or PCP contract. Apart from that, HP and PCP balloon payments are actually not the same. 

With PCP car finance, the balloon payment is optional. If you decide that you want to own the car at the end of your PCP contract, then you only have to pay the optional final lump sum. 

If not, you can simply return the car and walk away without having to pay anything else. The third option available for PCP deals is that you can use the remaining equity of the car as a deposit for a new vehicle and a new PCP contract. 

With balloon hire purchase car finance, the balloon payment is not optional at all. At the start of your contract, you and the car finance company will agree to a certain amount that you’ll pay at the end of the agreement. When that point comes, you have an obligation to settle it before the car finance company transfers the ownership of the vehicle to you. 

So basically, HP balloon payments are just deferred payments that help in keeping your monthly instalments low. Before you complete your HP agreement, it’s something you have to pay to close your account with the lender and own the car. 

Is Hire Purchase with Balloon Payment a Good Idea?

This type of HP car finance is a good choice if you prefer to divide your payments between the initial deposit, monthly instalments, and a balloon payment. Having this final lump sum payment deferred at the end of your agreement means your monthly repayment amount will be much more affordable. 

If you’ve decided that you want to own a car, Hire Purchase with a balloon payment might be more budget-friendly for you than the regular HP deal. The usual Hire Purchase payments can be high, especially if you take a no-deposit car finance deal or you only paid the minimum deposit amount at the start of the agreement. 


Having this option to spread car finance repayments is a great way to make buying a car more affordable to many drivers. 90% of car buyers use this method to finance their car. Whether you’re applying for Hire Purchase, HP with balloon payment, or PCP car finance, what’s important is that you’ve carefully assessed your financial situation and know for sure that you’ll be able to afford the monthly payments without having to sacrifice a good and comfortable lifestyle. Maybe check out the Carmoola calculator to see what level of repayments to expect when you borrow a certain amount, it's really useful to see this first! 👍