Second-hand Hire Purchase (HP) finance

Want to own your car once you've made all the monthly payments - but with the lowest possible instalments? Check out used car Hire Purchase

BuyaCar team
Apr 1, 2022

If you’re planning to purchase a used car on finance, then you’re in good company. Millions of drivers have chosen to take out car finance over the last few years alone, with more than 90% of new cars now being financed, along with a rapidly increasing proportion of used cars.

Drivers often use finance to afford newer and safer models, with cleaner emissions and more modern technology. Brand new cars may have high prices and, as a result, high monthly payments, but that needn't be the case if you look at nearly new or used cars.

Many of these cars are financed using Hire Purchase (HP), which is available on virtually any car, and sees you own the car outright one you've made all the monthly payments. Alternatively, Personal Contract Purchase (PCP) comes with lower monthly payments - as these only cover part of the car's value - and the option to return the car at the end of the agreement.

If you want to own the car at the end of a PCP finance contract, however, you'll have to make the large optional final payment to be able to keep the keys and you'll pay more interest overall than you would with an equivalent Hire Purchase deal. That's because you pay off the finance balance more slowly with PCP than you would with a Hire Purchase deal of the same length.

Scroll down for more information on getting a second-hand car with Hire Purchase, or watch our video guide to get a feel for whether Hire Purchase is the right type of finance for you.

Hire Purchase (HP) car finance

Hire Purchase finance splits the cost of a car across a deposit and a series of equal monthly instalments. Contracts typically last for between two and four years and once you've made the final monthly payment, you’ll own the vehicle. The longer the contract, the lower your monthly payments, as the cost of the car is spread across more monthly payments.

Most drivers put down a deposit, although a no-deposit option is often available. Be aware, though, that the higher the deposit you put down, the lower your monthly payments will be and the less interest you'll pay - as you're borrowing less. Also bear in mind that the deposit goes towards paying off the car, so don't expect it to be returned at the end of the contract.

How HP finance works

1. Deposit & delivery

  • A deposit reduces the amount owed. A no-deposit option may be available

2. Monthly payments

  • Pay for the rest of the car with fixed monthly instalments

3. You own the car

  • Once the final payment is made, the car is yours

HP finance pros and cons

Good for

✔  Spreading the cost of your car
✔  No mileage restriction
✔  Available for most vehicles
✔  No-deposit option

Not so good for

Cheapest monthly payments
Regular car upgrades
Flexibility - you own the car at the end
Protection against the car dropping in value

Hire Purchase or PCP?

Personal Contract Purchase (PCP) finance offers more flexibility and lower monthly payments than HP. That’s because monthly payments only cover part of the car’s cost, leaving you with the option to return the car at the end of the contract or buy it by making the large optional final payment.

Low monthly payments and flexibility have made PCP the most popular type of car finance, but it’s not the best option for everyone. We’ve highlighted some of the key differences below.

Monthly payments

Monthly payments with PCP finance are lower than with Hire Purchase because they don’t cover the full cost of the car. This can enable you to drive a newer and more expensive vehicle for your monthly budget but will mean that you don’t own the car at the end unless you make a further large payment at the end.

If you don't have the cash to pay for this, you'll need to refinance and pay interest on this amount again. Be aware that if you plan to own the car at the end of the contract, that you'll typically be better off financing the car with Hire Purchase. As you pay off the balance quicker with Hire Purchase - through those higher monthly payments - you'll end up paying less interest overall to own the car this way (assuming the same length of contract and interest rate).


Both types of finance usually allow you to adjust your deposit and contract length - which have an impact on your monthly payments - to enable you to find a combination that suits you.

However, PCP is far more flexible at the end of the contract, with the ability to return the car and walk away, trade it in for another - using any value over the remaining finance balance to put towards the deposit on your next car - or buy it for the pre-agreed optional final payment, which can be refinanced.

If the car is worth more than the optional final payment at this stage, then you can trade it in and use the difference - which is known as equity - to put towards the deposit on another vehicle, to help lower the cost of a new model.

Total amount payable

If you take out PCP finance and then return the car at the end, you'll have spent less than paying for a car outright - although you’ll have nothing to show for what you have paid, as you have effectively rented the car.

Make the optional final payment to buy the car at the end of the contract and you'll have paid more overall than with an equivalent Hire Purchase deal, though (assuming the same deposit,  contract length and interest rate), as you're paying off the amount owed more slowly, meaning more interest builds up.

Hire Purchase’s higher monthly payments mean that you clear your debt more quickly than with PCP, where you continue to owe (and pay interest on) the large optional final payment until the very end of the agreement.

So if you do want to own your car at the end of the agreement, Hire Purchase is likely to be a cheaper option.

Car age

Both HP and PCP car finance are available for new and used cars. While PCP is normally only available on cars up to around five years old, Hire Purchase is available on older cars as well.

Once a car is more than five years old, it becomes difficult to establish its likely future value, so PCP becomes less common. Hire Purchase continues to be available for these older cars.

PCP monthly payments and any deposit you make, effectively add up to the amount that a car is expected to lose over the course of the arrangement, with a little interest on top. You'll then have the choice to make the optional final payment to own the car. This means that for the lowest monthly payments opting for a used car and paying for it with PCP can be a good option.

Future value guarantee

One major advantage of PCP finance is that you're protected even if the value of the car you're driving drops dramatically.

That’s because its future value is estimated at the start of the agreement and used to calculate your monthly payments. This is known as the optional final payment, the balloon payment or the 'Guaranteed Minimum Future Value' (GMFV).

No matter what happens in the used car market - even if the type of car suddenly becomes very unpopular with buyers and is worth much less than expected - you can return the car at the end of the contract with nothing extra to pay (provided you've stuck to the pre-agreed mileage limit and kept the car in good condition). If the car is worth less than the optional final payment then the finance company will lose out, not you.

If the car is worth more than the optional final payment at the end of the contract, however, you don’t have to forfeit this surplus: by trading the car in for a new one or selling it yourself - with the agreement of the lender, since you don't own the car unless you make the optional final payment - you can use the difference towards the deposit on your next car.

*Representative PCP finance - Ford Fiesta:

48 monthly payments of £192
Deposit: £0
Mileage limit: 8,000 per year
Optional final payment to buy car: £2,923
Total amount payable to buy car: £11,926
Total cost of credit: £2,426
Amount borrowed: £9,500
APR: 9.9%

BuyaCar is a credit broker, not a lender. Our rates start from 6.9% APR. The rate you are offered will depend on your individual circumstances.


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