BMW X5

You have three options when the agreement ends:

You can trade in the car for a new deal

You can swap the car for another one, subject to the terms of your agreement. If the actual market value of the car is higher than the lender’s predicted value, you can put the difference towards your deposit for a new agreement. New finance agreements are subject to status.

You can return the car

You simply hand the car back to the lender. Most lenders will collect the car but you should check the terms of your finance agreement. The car needs to be in good condition and within the agreed maximum mileage or there may be extra charges

You can buy the car

When you enter into your finance agreement, the lender predicts what the car will be worth when the agreement ends. If you pay this lump sum, called the ‘balloon’ or ‘optional’ final repayment, including any purchase fee, you’ll own the car. If you know that you want to own the car and can afford higher monthly instalments, HP could work out cheaper overall than PCP.

With a Hire Purchase (HP) finance agreement, you’ll put down an initial deposit when taking out your agreement and you will make regular instalments over an agreed fixed period, much like a regular loan. HP finance agreements are secured against the car and you’ll therefore own the vehicle once your final payment is made. If your aim is full vehicle ownership at the end of your agreement, then HP finance is usually the more cost effective way for you to achieve this.

With a HP finance agreement, you’ll be able to spread the cost of vehicle ownership over a fixed term of up to 5 years. If you don’t have the full funds to buy a used car right now, HP is great for allowing you to make smaller payments over a period of time that works for you. Unlike PCP finance agreements, HP finance does not have any balloon payments or mileage limits, making the overall finance product easier to manage and understand.

Hire purchase is also sometimes known as ‘conditional sale’.