How to spot the best used car Hire Purchase deals

Hunting for a used car and considering Hire Purchase? Tracking down the best finance deal can be daunting. Here’s how to get a great deal

Matt Rigby
Aug 28, 2020

Want to own your next car, but don't have the cash to buy it outright? Hire Purchase (also known as HP) can be the simplest and best value way to get youself a new set of wheels. In essence, a Hire Purchase finance deal can be taken out on a new or used car, and spreads the cost of a car across a deposit and a number of bitesize chunks.

HP consists of an initial deposit, followed by a series of equal monthly payments. Once you’ve made all of the monthly payments, the car is yours. Simple. There’s no large final lump sum to pay, no requirement to hand the car back to the finance company and no need to buy a new vehicle at the end. This means you can keep hold of the car for years to come, sell it or trade it in for another one - it's up to you.

Hire Purchase does come with higher monthly payments than some other types of car finance but that's simply because you’ll own the whole car at the end of the term, while that's not the case with the alternatives. With PCP finance, for instance, you’d have to make a large optional final payment in addition to the monthly payments - which are lower than the equivalent Hire Purchase deal as a result - to own the car.

Depending on the car and the length of the contract, the optional final payment could amount to half of the new price of the car - if not more. That means that if you know you want to own the car, HP can be a much more affordable way to get to that point. Yes, you pay a little more each month, but as a result, you don't have to pay a lump sum of many thousands at the end of the contract.

HP is one of the most common types of finance for used cars, as it's very simple, you get to own the car at the end of the contract and it's available on cars of pretty much all ages, unlike PCP. To work out your monthly payments, the lender subtracts the deposit from the initial price of the car and divides the remainder into equal portions, with a little interest built in.

This simplicity means that, assuming the same deposit amount and contract length, all £10,000 cars should cost the same per month - provided the same APR charge is used. In comparison, PCP finance costs vary dramatically, depending upon the predicted value of the car at the end of the contract. That's because PCP monthly payments cover the difference in value between the car's initial price and what it's expected to be worth when you hand it back.

That means that one £30,000 car that is very desirable as a used car - so likely to be more valuable at the end of the contract - could cost less per month than another £20,000 car that isn't desirable second-hand, as the car with the lower initial price has lost more value overall. 

If you like the sound of the simplicity of HP have a look at our video explainer to find out more and keep reading for an outline of what to look for to ensure you get the best Hire Purchase deal for your next car.

1. Lower price means lower monthly payments

It seems pretty obvious, this, but the lower a car's cash price - if you were to pay for it outright - the lower your monthly payments will be with Hire Purchase. More than this, a lower price means a smaller amount of interest mounts up, so not only do you pay less towards the car, you pay less interest, too.

If you're looking for a new car, the list price is set. However, when searching for a used car, apparently similar models can come with greatly varying price tags, depending on age, mileage, what sort of equipment levels they offer, and even colour. And of course, some places offer keener prices than others, so it pays to shop around.

This is particularly true with models that are quite common - the more choice there is, the lower the cash price is likely to be and the more likely you are to find one that suits your particular needs or simply one that is particularly good value.

2. Lower APR means lower monthly payments

APR, which stands for Annual Percentage Rate, shows the amount in per cent that you’ll be charged in interest and other compulsory charges over the duration of the loan. Generally, the lower the rate, the less interest you’ll pay overall - provided you’re comparing loans for the same amount and over the same length of time.

Do be aware though, that advertised APR figures will be described as ‘representative’ or ‘typical APR’. This is because while this rate must be available to at least 51% of those who apply for that particular loan, the flipside is that almost half of those who apply are likely to have to pay more.

The only way to know how much for certain is to apply for the loan. Be aware, however, that this can leave a mark on your credit history - through what is known as a hard search - and if you apply for many different loans in a short amount of time, this can have a negative impact on your ability to secure finance.

Read our guides to find out whether your credit score is good enough for car finance and how to maximise your odds of being approved for car finance, for all the details. 

3. Always compare like-for-like deals

You spend a lot of money when purchasing a car, so it’s important to shop around to compare the best deals. Just as you’d compare interior space, or economy figures for two types of cars, it’s sensible to compare Hire Purchase deals on several different cars to make sure you pick the one that’s best for you.

The key here is that there’s more to HP deals than monthly payments: you need to know the length of the contract, the size of the deposit and the APR level before assessing whether a deal is good value or not. Therefore, it's key when getting quotes on different cars to ensure that the contract length and your deposit amount are the same.

For example, a car that's £250 per month on a 48-month contract may appear more appealing than one that's £300 per month on a 36-month contract, but it's possible that the second car would cost just £220 if it were on a 48-month contract - saving you £30 per month. This is especially true when deals come with different interest rates and charges, so get like-for-like quotes to see clearly which option offers you the best value.

4. Deposit contributions are a discount

Deposit contributions are a type of discount available on certain types of finance - such as HP and PCP. The larger any deposit contribution is, the lower your monthly payments will be - assuming the same contract length, deposit and mileage allowance - as the overall amount you're borrowing is less.

Better still, because this discount applies on the initial value of the car, not only do your monthly payments reduce, but you will have less interest to pay, too, as the total amount you're borrowing is less. Be aware, however, that deposit contribution discounts aren't normally accounted for in APR figures.

Therefore, a car with a large deposit contribution but high interest charges could actually cost you less than one with a lower APR charge, but no deposit contribution discount. If in doubt, get like-for-like quotes and it should be clear which car or finance option should cost you the least.


Read more about:

Latest advice

  1. Car maintenance

  2. Car ownership

  3. How long does it take to charge an electric car?