Part 2: HP explained - Car finance made easy

In part one of our blog we explained all about Personal Contract Purchase, a very popular method when financing your new car. It is very important to understand all the methods that are available to you when arranging finance for your new vehicle. In part two of this three-part blog we are going to explain all about Hire Purchase. We hope these blogs will allow you to make an easier decision when it comes to car finance on your new vehicle.

HP car finance or, as it is formally known, Hire Purchase is another very popular funding method for your new car. Unlike Personal Contract Purchase (PCP), Hire Purchase means you will continually pay a fixed rate monthly payment for an agreed term until the car balance has been paid off. Once you have made all the payments as per the agreement, you will own the vehicle.

HP finance is very flexible, it gives you the opportunity to choose the deposit you can afford and want to put into the payment plan. It means you are then able to find a monthly payment which is suitable to your budget. The larger the amount of deposit put in at the beginning of the agreement means the lower the monthly payment.

Many customers use their trade in price of their old car to provide this deposit. Once the deposit is agreed by both parties this amount is then deducted from the price of the car. The remaining balance is then split equally across the agreed finance term. These terms can vary from anywhere between 12 and 60 months.

The rate of interest and monthly payments with HP finance is always fixed throughout the term of the finance agreement.

The ability to settle your agreement at any time is also an option for you. What is very important to understand with HP finance is, that you will not own the car until the finance has been completely paid off and the last monthly payment is made.

The main differences between HP and PCP are as follows:

Optional payments at the end – HP Finance doesn’t have any optional final payment, you simply pay the fixed monthly payment until the car is paid off in full.
Monthly payments – The monthly payment will generally be higher than a PCP unless you pay a significant deposit.
Mileage – A monthly HP finance payment is not altered dependant on mileage

Hire purchase is a good funding method for customers who like to keep their vehicle for a longer period or are likely to do higher mileage.

Remember when choosing your type of finance, it is important to understand what you are going to use your vehicle for, the amount of money you would like to spend and how far you are going to travel. These factors will help you when deciding what type of finance to go for.

As always, we hope part one of this blog has helped answer and questions or worries you may have had. Keep your eyes peeled for part three and if you have any questions on Car Finance please don’t hesitate to contact us by clicking on the buttons below.

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Company Info

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Reg Office: Sturrock Way, Bretton, Peterborough, PE3 8YL

Reg. Company Number: 359860

VAT Reg. No. 120617216

Financial Disclosure

F.P. Smith Holdings (Newark Avenue) Limited, F.P. Smith Holdings (Ilkeston) Ltd, and F.P. Smith Motors Ltd are Appointed Representatives of Automotive Compliance Ltd, who is authorised and regulated by the Financial Conduct Authority (FCA No 497010). Automotive Compliance Ltd’s permissions as a Principal Firm allows F.P. Smith Holdings (Newark Avenue) Limited, F.P. Smith Holdings (Ilkeston) Ltd, and F.P. Smith Motors Ltd to act as a credit broker, not as a lender, for the introduction to a limited number of lenders and to act as an agent on behalf of the insurer for insurance distribution activities only.

We can introduce you to a selected panel of lenders, which includes manufacturer lenders linked directly to the franchises that we represent. An introduction to a lender does not amount to independent financial advice and we act as their agent for this introduction. Our approach for a new car purchase is to introduce you first to the manufacturer lender linked directly to the particular franchise you are purchasing your vehicle from, who are usually able to offer the best available package for you, taking into account both interest rates and other contributions. If they are unable to make you an offer of finance, we then seek to introduce you to whichever of the other lenders on our panel is able to make the next best offer of finance for you. Our aim is to secure the best deal you are eligible for from our panel of lenders. Lenders may pay a fixed commission to us for introducing you to them, calculated by reference to the vehicle model or amount you borrow.

Different lenders may pay different commissions for such introductions, and manufacturer lenders linked directly to the franchises that we represent may also provide preferential rates to us for the funding of our vehicle stock and also provide financial support for our training and marketing. But any such amounts they and other lenders pay us will not affect the amounts you pay under your finance agreement, all of which are set by the lender concerned. If you ask us what the amount of commission is, we will tell you in good time before the Finance agreement is executed. All finance applications are subject to status, terms and conditions apply, UK residents only, 18’s or over. Guarantees may be required.

In the event of disputes we are unable to resolve the Retail Motor Industry Federation (RMI) National Conciliation Service will offer free impartial advice and when appropriate an Alternative Dispute Resolution (ADR) service that we are fully committed to. For further information you can visit their website at www.nationalconciliationservice.co.uk or call 01788 538317.

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Part 2: HP explained - Car finance made easy