Representative Example: You could borrow £10,699 over 60 months with an initial payment of £495.89 (including £199 Admin Fee) followed by 58 monthly payments of £296.89 with a final payment of £495.89 (including optional £199 Option to Purchase Fee). Total amount repayable will be £19,012,40. 26.1% APR, annual interest rate (fixed) 13.3%.
Hire Purchase vs Personal Loans: What’s the Difference?
When you want to own a car but don’t have the money upfront, two common options to consider are hire purchase (HP) car finance and personal loans. Both let you spread the cost over time, making it easier to budget for your car without needing to pay in full at the start. However, they work in different ways, HP is a type of car finance where the lender owns the vehicle until your final payment, while a personal loan gives you the funds upfront so you own the car from day one.
Hire purchase is a simple way to buy a car. Instead of paying everything upfront, you spread the cost over time in fixed monthly payments. You usually start with a deposit, though some lenders offer zero deposit car finance. Then, you pay off the rest over one to five years.
The car acts as security for the loan, which means you don’t legally own it until the last payment, including the small “option to purchase” fee, is made. After that, the car is yours.
This type of finance is often used for second hand cars, helping people stay within budget while getting a car that suits their needs. You can often arrange finance and drive away the same day, without delays or waiting lists.
Most hire purchase deals require a deposit, usually around 10% of the car’s price. However, some lenders, like AutoMoney Motor Finance, offer car finance with zero deposit if you need more flexibility.
If you do pay a deposit, your monthly payments will be lower, because you're borrowing less. If you go for a zero deposit deal, the monthly payments will be higher, but it can be a helpful option if you don’t have savings to put down upfront.
Choosing the right approach depends on your budget and how much you can afford to pay each month.
With a personal loan, you borrow money directly from a bank or lender, then use it to buy the car. You own the car from the start and repay the loan in fixed monthly payments, just like HP.
The main difference is that with a personal loan, the car doesn’t act as security. So you’re free to sell or modify the vehicle whenever you like.
HP agreements, on the other hand, mean the lender owns the car until the final payment is made. This gives them the right to repossess the car if you miss payments, which isn’t the case with a personal loan.
Your credit score plays a big part in getting approved for either HP or a personal loan. A higher score usually means lower interest rates, which can save you money.
With a low credit score, it might be harder to get approved for a personal loan, or you may be offered higher interest rates. HP finance may be easier to access because the car acts as security, which reduces risk for the lender.
To check your credit score, use one of the major agencies:
If you’ve struggled with credit in the past, you might still be able to get car finance, especially from specialist lenders like AutoMoney.
While both hire purchase and personal loans offer fixed monthly payments, it’s important to understand the full cost of borrowing. With hire purchase, you’ll often pay an admin or documentation fee, this is usually rolled into your first payment. There’s also an “option to purchase” fee at the end, which gives you legal ownership of the car. Some lenders may also charge if you settle the finance early, though you may be entitled to a rebate on interest under the Consumer Credit Act.
Personal loans can also include setup or arrangement fees, though many lenders offer “no-fee” options. If you repay early, you might still be charged an early settlement fee. It’s worth checking the terms carefully to avoid surprises. The total amount repayable for both types of finance depends on your loan amount, term, and interest rate, but with HP, you might pay more overall due to higher rates, especially if you have a lower credit score.
Benefits of hire purchase:
Drawbacks:
Benefits of personal loans:
Drawbacks:
The best choice depends on your situation. If you want structure, fixed payments, and the ability to finance a used car, even with a poor credit history, hire purchase is a strong option. It’s especially useful if you want to build your credit over time and take ownership gradually. Plus, you don’t need perfect credit to apply.
If you’d rather own the car right away and have the credit profile to access low-rate loans, a personal loan might be better. It gives you more freedom with how you use or sell the car and isn’t tied to a specific dealership. Just keep in mind that qualifying for the best deals usually requires a higher credit score and a stable income.
There’s no universal answer, only what’s right for your budget, needs, and long term plans. If you’re unsure, speaking to a specialist lender like AutoMoney can help you compare your options and move forward with confidence.
