How hire purchase works
With hire purchase (HP) you pay a deposit, then fixed monthly payments that cover the rest of the price plus interest. You own the item, often a car, once you've made the last payment. Some agreements add a small 'option to purchase' fee at the end.
Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Worked example
A £15,000 car with a £1,500 deposit leaves £13,500 to finance. At 9% over 48 months, the monthly payment is £335.95 and you'd repay £16,125.51 in total, plus your deposit.
Your rights under hire purchase
Under the Consumer Credit Act, you can usually hand the goods back and end a regulated HP agreement once you've paid half the total amount payable. This is called voluntary termination.
Until the final payment, the lender owns the goods, so you can't sell them without settling the agreement first.
Inputs for the hire purchase calculator
Price
The price of the car or goods you're buying on HP.
Deposit
What you pay upfront, including any part-exchange value.
Interest rate (per year)
The annual interest rate on your agreement. The rate shown is only an example, so enter the rate from your quote. Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Term
The length of the agreement in months.
CALCULATOR QUESTIONS
Hire purchase calculator questions
When do I own the car on hire purchase?
Once you've made the final payment, including any option to purchase fee.
What's the difference between HP and PCP?
HP repays the full price over the term. PCP has lower monthly payments and an optional final balloon payment if you want to keep the car.
Can I end a hire purchase agreement early?
Yes. You can settle it early by paying the outstanding amount, or usually hand the goods back once you've paid half the total amount payable.
Does a bigger deposit help?
Yes. You finance less, so the monthly payment and the total interest both fall.