What is hire purchase on a car, and how does it work?

Hire purchase (HP) lets you pay for a car in instalments while hiring it. You become the legal owner when you make the final payment and take up the option to purchase; until then the finance company owns it.

Last reviewed 6 October 2026. The official sources it draws on, and the date each was read, are listed at the foot of the page.

What the law means by hire purchase

The Consumer Credit Act 1974 defines a hire-purchase agreement as one under which goods are hired in return for periodical payments, and the property in the goods will pass to the hirer if the terms are complied with and the hirer exercises an option to purchase, or another specified act or event occurs. The “total price” the Act uses for several rights includes any sum payable on exercising that option.

Who owns the car

The Financial Ombudsman Service explains that you hire the goods by paying in instalments, and at the end you can make the final payment and become the legal owner. Until then the finance provider owns the car, and nidirect adds that you cannot legally sell it until the agreement has been paid off.

How it differs from a PCP

The FCA describes a PCP as a form of hire purchase in which the car’s value at the end is assessed at the start and deferred, which lowers the monthly payments. The Financial Ombudsman Service describes hire purchase and PCP together as one type of agreement.

What you can do during the agreement

If it is a regulated agreement you can withdraw within 14 days, counted from the day after the agreement is made or you receive your copy, if later, and you can settle early at any time. If you miss a payment, the lender has to follow the default-notice procedure before it can end the agreement or take the car. Each of these has its own answer.

Check the numbers

A calculator can show the monthly payment and the total amount payable for the price, deposit, rate and term you enter. It cannot show what a particular lender will offer you, which depends on its own assessment of what you can afford.

Sources

Consumer Credit Act 1974, section 189 (interpretation)Read on 6 October 2026. The definition of a hire-purchase agreement and of the total price, which includes any sum payable on exercising the option to purchase.
Financial Ombudsman Service: Car financeRead on 6 October 2026. You hire the goods by paying instalments and can make the final payment to become the legal owner; the finance provider owns the car until then.
FCA: Our work on motor financeRead on 6 October 2026. A PCP is a form of hire purchase in which the end value is assessed at the start and deferred, giving lower monthly repayments.
nidirect: CreditRead on 6 October 2026. Under hire purchase you do not own the goods until the final payment and cannot legally sell them until the agreement has been paid off.
Consumer Credit Act 1974, section 66A (withdrawal from consumer credit agreement)Read on 6 October 2026. The right to withdraw from a regulated agreement within 14 days.
Consumer Credit Act 1974, section 94 (right to complete payments ahead of time)Read on 6 October 2026. The right to settle a regulated agreement at any time by notice and payment.
Consumer Credit Act 1974, section 87 (need for default notice)Read on 6 October 2026. A default notice is needed before a lender can terminate, demand earlier payment or recover possession because of a breach.

Looking for a car?

Browse used cars listed by UK dealers on Autoza.

Find a car