Hire purchase
What you need to know about hire purchase
Hire purchase (HP) is a way to finance a car through fixed monthly repayments, but you don’t own the car until the final payment is made. Some HP agreements include a "balloon payment", which is a large final payment you must make if you want to own the car outright.
This page explains how HP works, what interest and fees you can expect, the difference between HP and a personal contract plan (PCP), and your rights if you want to end the agreement early, return the car or run into repayment problems.
What is hire purchase and how does it work?
Hire purchase (HP) is a type of car finance often available from car dealers. It lets you sort out your finance and pick your car in the same place.
- Under a HP agreement, you hire the car and pay an agreed amount, usually in monthly repayments
- You become the legal owner at the end of the agreement
- The finance company is the legal owner until you have made all repayments
- You cannot sell the car without the finance company’s permission
Undercover Dealer video about hire purchase agreements
What interest and fees apply to hire purchase?
The total amount you pay back is called the total HP price. This includes:
- The cash price of the vehicle
- Interest
- Fees to set up and end the agreement
The interest rate on HP agreements varies by finance company. The rate is fixed for the term of the agreement, so you usually cannot increase your repayments each month.
Common fees include:
- Documentation fee: For setting up the agreement, usually €50 to €150
- Interest surcharge for missed repayments: A higher rate of interest may be charged on missed payments
- Penalty fee for missed repayments: Charged for missed or late payments, usually about €25
- Completion fee: To end the agreement and transfer ownership, usually €50 to €75
- Repossession charge: If the car is repossessed, usually around €300
- Rescheduling charge: If the terms are changed, usually €60 to €70
If you pay off your agreement early and keep the car, you may be entitled to an interest rebate. However, you will not save as much in interest as you might with other types of credit, as the finance company decides the rebate amount.
When comparing your options, compare the total amount payable on a personal loan (cost of credit) with the total HP price (original finance amount plus interest and fees). Use our loan calculator to help you.
The one-third rule: repossession rights
Under Irish law, if you’ve paid less than one-third of the total hire-purchase price, the finance company can repossess the car without going to court. Once you’ve paid more than a third, they must get a court order before repossessing the vehicle, and they cannot take it from your home.
The half rule: ending your agreement early
If you’ve paid at least half of the total hire-purchase price, you can legally end the agreement early. You return the car and owe nothing more in monthly payments. If you haven’t reached halfway, you can still terminate the agreement, but you must pay the difference between what you’ve paid and half the total price. Any arrears may still apply.
How does PCP differ from hire purchase?
Personal Contract Purchase (PCP) is similar to hire purchase but works differently at the end of the term. You pay a deposit and monthly instalments, then choose to:
- pay a balloon payment to keep the car
- return the car, or
- trade it in for a new PCP deal
What should you do if you have problems making repayments?
If you have problems making repayments on a HP agreement, there are options available:
- Returning the car under the half rule
- Voluntary surrender
To learn more, visit problems making car repayments.
What happens if your car is faulty?
When you buy goods, including cars from a dealer, you have consumer rights.
If you buy a car on HP and find a fault, the finance company you make repayments to is responsible for fixing the issue, as they are the legal owner. As a first step, return to the dealer and ask them to fix it.
If the finance company will not help, you can go through their complaints process and, if necessary, escalate it to the Financial Services and Pensions Ombudsman.
