HP stands for Hire Purchase and consists of elements of both a lease and a loan. It is probably the most common form of car finance in the UK. Hire Purchase is simply a legal contract/agreement where an individual agrees to pay for their goods (in this case a car) over an agreed period of time.


Hire purchase was founded in the UK and is now found in many countries worldwide. Hire Purchase is a great option for people with (or without) a deposit but not the full amount for the goods in question. In effect "HP" allows people to hire a car for a period of 12 to 60 months and when all agreed monthly payments have been made you then own the car legally as the contract has been terminated/settled.

To clarify, the finance company is the legal owner of the car until all payments have been made. When the hire purchase agreement is signed initially an interest rate will be set in place for the term of the agreement and an installment plan/payment put in place. It is imperative that you keep up to date with your monthly payments otherwise it may affect your credit record and in the worst cases the finance company can repossess the vehicle.

Ending a car finance agreement early using ‘voluntary termination’ is your legal right, as long as you’ve paid at least half of the total amount due and you hand the car back in satisfactory condition. You should then be left owing nothing and the lender should update your credit report to reflect this. The lender may also add a voluntary termination marker to the entry on your credit report which explains to other lenders why the finance was settled early.

Your credit score should not be affected, as long as you had paid all your monthly payments on time up to the point where you hand the keys back. Make sure you stay in touch with the finance company through the process, and don’t cancel your direct debit agreement with them until the voluntary termination is confirmed as complete.

There are lots of reasons why you might want to end a car finance package early – it may be that you decide it’s not the one for you, or maybe your requirements change and you need a more practical car, or it might be that you can’t afford the monthly repayments. Whatever the reason, you shouldn’t fear – simply read our guide to understand how to leave your finance deal.

Voluntary Termination of Car Finance
You have the right to hand the vehicle back to the finance company as part of a voluntary termination at any point during your agreement, as long as you have paid off 50% of the total amount repayable (not just the amount borrowed as you have to include interest and fees). If you have not already paid 50% of the total amount repayable you will need to make a payment that means that half of the total amount repayable has been paid. The credit agreement that you signed before taking the car should show its total price and what you’ll have to pay if you return the car. If you’ve already paid more than half the car’s cost, you won’t receive a refund of the difference.
Returning the car early can make sense if you no longer need it or could buy a comparable car elsewhere for less than your remaining payments would cost you.
The finance company cannot charge you an extra fee or fine for this. However you will be responsible for paying any arrears and any amount arising if you have breached the obligation to take reasonable care of the vehicle. Reasonable care may include but may not be limited to: dents or scratches on the car; making the car road legal (including MOT); and paying for any excess mileage you have done (as stipulated within your agreement).

How voluntary termination works
As long as you repay 50% of the Total Amount Payable (not the total amount borrowed, as you need to include interest and fees), you are entitled to terminate the agreement and return the car to the finance company. As long as there are no “damages if you have failed to take reasonable care of the goods (over and above normal wear and tear)”, you have nothing further to pay.

The total amount payable (which is the total amount borrowed plus interest and fees, and also includes the Guaranteed Minimum Future Value on a PCP) must be clearly shown on any car finance quotation and contract, so you should be able to find it easily enough. You must pay off half of this figure to be able to voluntarily terminate your PCP or HP.

It makes no difference if you bought your car new or used; the law is exactly the same for both.

Can I settle my agreement early and still keep my car?
You may also be able to pay off your entire agreement early and keep the car - to do this you need to obtain a settlement figure from your lender and ensure that it is completely paid off. There may be an early repayment charge associated with this option.

You have the right to hand the vehicle back to the finance company as part of a voluntary termination at any point during your agreement, as long as you have paid off 50% of the total amount repayable (not just the amount borrowed as you have to include interest and fees). If you have not already paid 50% of the total amount repayable you will need to make a payment that means that half of the total amount repayable has been paid. The credit agreement that you signed before taking the car should show its total price and what you’ll have to pay if you return the car. If you’ve already paid more than half the car’s cost, you won’t receive a refund of the difference.

Returning the car early can make sense if you no longer need it or could buy a comparable car elsewhere for less than your remaining payments would cost you.

The finance company cannot charge you an extra fee or fine for this. However you will be responsible for paying any arrears and any amount arising if you have breached the obligation to take reasonable care of the vehicle. Reasonable care may include but may not be limited to: dents or scratches on the car; making the car road legal (including MOT); and paying for any excess mileage you have done (as stipulated within your agreement).

How voluntary termination works
As long as you repay 50% of the Total Amount Payable (not the total amount borrowed, as you need to include interest and fees), you are entitled to terminate the agreement and return the car to the finance company. As long as there are no “damages if you have failed to take reasonable care of the goods (over and above normal wear and tear)”, you have nothing further to pay.

The total amount payable (which is the total amount borrowed plus interest and fees, and also includes the Guaranteed Minimum Future Value on a PCP) must be clearly shown on any car finance quotation and contract, so you should be able to find it easily enough. You must pay off half of this figure to be able to voluntarily terminate your PCP or HP.

It makes no difference if you bought your car new or used; the law is exactly the same for both.

When you find the vehicle you want to buy, typically you will agree with the dealership how much deposit you will pay. Your finance company then pays the dealer the remainder of the balance for the car, and you repay the finance company over an agreed period in regular, monthly instalments. All the time you are making repayments, you are, in effect, “hiring” the use of the car from your finance company, and it is your responsibility to keep it in good condition.

Once the final payment has been made, the vehicle belongs to you - the “purchase” side of things. At this time you may also have to pay an admin fee or a small option-to-purchase fee, but this will all have been made clear at the time of taking the agreement.

Because you do not own the vehicle outright until you have made the final payment (as it belongs to the finance company), you are unable to sell the car privately while you are still making finance repayments on it unless you have your lender’s agreement,. You can, however, part exchange the car at any time or settle your agreement early, but you’ll have to obtain a settlement figure and make sure this is paid off in full.

It is imperative that you keep up to date with your monthly payments otherwise it may affect your credit record and in the worst cases the finance company can repossess the vehicle.