Hire purchase

What happens at the end of the finance deal?

Once you've made your final monthly payment you'll own the car.

Some car finance agreements require a one-off final payment too, similar to an admin charge, in order for you to secure the vehicle.

This should be made clear from the outset.

As the owner of the car you'll then be able to do with it as you please.

What happens if I miss a payment?

If you miss a payment you may be able to come to some sort of agreement with your HP creditor.

For example, you could be allowed to pay off the outstanding amount over a set period time, or even extend the agreement. However, this is not always the case and, in some circumstances, your car can be repossessed (see below).

This means it's worth checking how missed payments are dealt with before you sign up to any deal. As a form of credit, it’s also worth knowing that missing an HP payment may also harm your credit profile.

Can my car be repossessed?

If you break the terms of the HP agreement, for example, by missing payments, then your car may be repossessed.

How easily your car can be taken off you depends on certain factors: the main one being how much of the outstanding balance you’ve paid off.

The Competition and Consumer Protection Commission website has more information on this, which states:

If you have paid off less than one-third of the hire purchase price, the car finance company can take back the car without taking legal action against you. If you have paid more than one-third of the hire purchase price, a lender cannot repossess the car without taking legal action against you.”

Can I cancel an HP agreement before the final payment?

It's worth knowing that many HP deals allow you to terminate the agreement before the final payment is made.

In fact it's provided for by law in the Consumer Credit Act 1974, section 99, and should be noted within your contract.

As a result there are some fairly standard circumstances under which you can cancel.

For example, many agreements say that as long as you’ve repaid 50% of the total amount, which includes any interest, you can end the agreement and give the car back.

Pros

Repayment terms are often flexible.

Relatively low deposit payments required.

Interest rate is fixed.

You might be able to return the car part-way through the repayment period, depending on how much you've paid back. There's no final lump sum to pay at the end of the agreement.

Cons

The car isn't yours until you’ve made the final payment.

If you can’t meet payments the finance company could take your car away.

The size of your deposit and length of your repayment term will affect your monthly payments.

You may be limited to buying your car from a particular manufacturer or dealership.

Shorter-term deals can be relatively costly.