Hire Purchase Loan Formula for Car Finance

Do you want to know the Hire Purchase loan formula so you can calculate the cost of financing a car? Getting an early idea of costs is a great way to prepare your budget, and we’re here to help you out! Read on to learn how you can get estimates for Hire Purchase car finance and how you can find the best deals for your car purchase. 

What is Hire Purchase Car Finance?

Hire Purchase is a type of car finance where you get to buy the car you want without having to pay the full price with cash. Instead, you only have to pay a certain amount as your deposit on the car at the start of the Hire Purchase agreement.

The rest of the loaned amount will then be paid through a series of monthly instalments. The amount you need to pay every month is fixed, so you don’t have to worry about fluctuations in the economy and changes in interest rates. You can easily budget your finances and purchase a car in a more affordable way with Hire Purchase car finance.  Then at the end of the term, unlike a PCP, you will be the owner of the car, and it will be transferred to your name. 

What is the Hire Purchase Price Formula?

As mentioned earlier, your Hire Purchase agreement starts with your deposit payment. The amount you’ll put down can be as little or as much as you want. However, most car finance companies usually require at least 10% of the price of the car. It would also be beneficial for you if you could pay more for your deposit so that the monthly instalment amount can be lower than if you opt for a zero-deposit Hire Purchase deal. 

There are also Hire Purchase agreements that give you the option to pay a balloon payment at the end. While it’s much like the final lump sum payment in a PCP deal, HP balloon payments are not optional. You have to settle the amount to own the car and close your car finance agreement. Between the deposit and the balloon payment, you have to pay the monthly instalments for the full duration of your Hire Purchase contract. 

With these figures, we can now go to the Hire Purchase calculation formula. The cost of financing a car with Hire Purchase can be calculated by first knowing the interest rate that will be applied to your loan. You may then divide the interest by the number of payments you’ll make throughout your Hire Purchase agreement. 

Calculating your Hire Purchase payments require the following figures:

  • The amount you want to borrow
  • Your preferred repayment term
  • The Representative APR of the lender
  • The amount you can pay as a deposit
  • And the amount for the balloon payment, if applicable

Using a Car Finance Calculator 

What’s great about most car finance companies today is that they make it easy for customers to get estimates of Hire Purchase payments. You don’t have to make the calculations manually to arrive at an amount. Instead, you can visit the website of your preferred car finance company and look for their car finance calculator. Carmoola's calculator is easy to use, and the result will be provided to you instantly. Of course, the calculator uses the representative APR, so the figure you’ll get will only be an estimate. 

How the APR Affects HP Cost

APR stands for annual percentage rate. It is the rate that includes the interest as well as other fees and charges when you get a Hire Purchase agreement. It’s important to know the APR that the car finance company is willing to offer you so you can better estimate how much it will cost you to finance a car with Hire Purchase. 

The actual APR that will be applied to your loan can be different from the representative APR advertised by the lender. This is because the APR can change from one customer to the next. Each borrower is unique in terms of credit history, credit score, income, and financial standing. But generally, the higher your credit score, the lower the APR can be. Customers with poor credit scores usually get higher APRs because lenders deem those individuals as high-risk borrowers. 

Other factors that affect how much interest you pay is the amount you borrow for the car and the repayment term you choose. If you borrow more, then you’ll pay more interest. The same goes if you choose a longer repayment term. You’ll be able to know the actual APR that the car finance company will apply on your loan when they have evaluated your car finance application. Once you know the exact figure, it will be much easier to know the actual cost of financing a car with HP car finance. 


If you already have an HP agreement, you may refer to your contract to check how the car finance company arrived at your repayment amount. Knowing how to calculate the total cost of your hire purchase payments is a good step to preparing your finances. But you don’t have to make the calculations manually because you can simply use a car finance calculator to get an estimate of the cost. 👍