Glossary · UK
What is Hire Purchase (HP) Agreement?
A finance agreement where the buyer pays fixed instalments to use an item, such as a car, but only becomes its legal owner after the final payment is made.
Full Definition
A Hire Purchase (HP) agreement is a regulated credit agreement, most commonly used to finance cars, in which the finance company buys and retains legal ownership of the item while the customer pays a deposit followed by fixed monthly instalments over an agreed term, typically one to five years. The customer has the right to use the item throughout the agreement but does not become its legal owner until every instalment (including any final "option to purchase" fee) has been paid; if payments are missed, the finance company can in some circumstances repossess the item, and doing so is harder for the finance company once a third or more of the total price has been paid, when a court order is normally needed. HP differs from Personal Contract Purchase (PCP), which structures most of the item's value into a large optional final balloon payment and lower monthly instalments, and from a personal loan, where the borrower owns the item outright from the outset and the loan is unsecured against it. Because it is a regulated credit agreement under the Consumer Credit Act, HP financing usually carries statutory protections including a right to voluntarily terminate the agreement and return the goods once at least half of the total amount payable has been paid, provided the goods are returned in reasonable condition.