Finance glossary
Hire Purchase — HP
Also known as: HP
In simple terms
Hire purchase is a way of buying something — often a car — by paying a deposit and then fixed monthly instalments. You hire the item until the last payment, and only then does it become yours.
On this page
What does hire purchase mean?
Hire purchase (HP) is a form of credit used to buy goods, most commonly cars. You pay an initial deposit, then a series of fixed monthly payments over an agreed term. Until you make the final payment, you are effectively hiring the item and the finance company owns it.
Because the goods are the security for the debt, HP is a type of secured borrowing — if you stop paying, the lender can take the item back.
How hire purchase works
The total you repay is the cash price plus interest and any fees, spread across the term. Once the last instalment (and any small “option to purchase” fee) is paid, ownership passes to you.
Because the finance is secured on the goods, HP agreements on cars often come with legal protections — for example, once you have paid a third of the total amount, the lender usually needs a court order to repossess the vehicle.
How could this affect me?
HP spreads the cost of a big purchase and can be simpler than a personal loan, but you do not own the item until the end, so you cannot sell it freely while payments remain.
Missing payments can lead to the goods being repossessed and a mark on your credit file. Look at the total amount payable, not just the monthly figure, to judge whether it is good value.
Example
Buy a £15,000 car on hire purchase with a £1,500 deposit over 4 years:
| Cash price | £15,000 |
|---|---|
| Deposit | £1,500 |
| Amount financed | £13,500 |
| Representative APR | 9.9% |
| Term | 4 years (48 months) |
| Monthly payment | £340.71 |
| Total amount payable | £17,854.08 |
Figures are illustrative and rounded, and exclude any option-to-purchase fee. Your actual rate and payments depend on the lender.
Things to watch out for
- You do not own the item until the very last payment — you cannot sell it before then.
- Miss payments and the lender can repossess the goods.
- The total cost can be well above the cash price once interest is added.
- Voluntary termination rules let you hand a car back after paying half the total — but you may owe more if you have paid less.
Know your rights
- Hire purchase is regulated by the Consumer Credit Act 1974, giving you pre-contract information and usually a 14-day right to withdraw.
- Once you have paid at least one third of the total amount payable, the lender generally needs a court order to repossess protected goods such as a car.
- You have a right to end the agreement early (voluntary termination) once you have paid half the total amount payable.
- You can complain and escalate to the Financial Ombudsman Service if something goes wrong.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Hire purchase (HP) car finance explained (opens in a new tab). Accessed 22 Aug 2026.
- legislation.gov.uk, Consumer Credit Act 1974 — hire purchase and protected goods (opens in a new tab). Accessed 22 Aug 2026.