Hire Purchase
- Rated 4.9/5 on Feefo
- FCA authorised, FRN 315268
- BVRLA leasing broker member
- Part of Global Vehicle Group
Hire purchase is the most straightforward way to finance a vehicle you intend to own. You pay a deposit, then fixed monthly instalments across an agreed term, and once the final payment is made the vehicle is yours. There is no mileage limit and no condition inspection at the end, because nobody is taking it back. It is available to businesses and to private buyers, and the two are treated very differently.
Key facts
- Hire purchase is a regulated credit agreement. Interest applies and an APR will be shown in your documentation.
- You own the vehicle once the final payment and any option-to-purchase fee are made.
- No mileage limit and no end-of-contract condition charges. The vehicle is not going back.
- For a business, the vehicle goes on your balance sheet and you claim the capital allowances. This is the only agreement in this cluster where that is true.
- The main rate writing down allowance fell from 18% to 14% in April 2026. The 100% first-year allowance for new zero-emission cars continues but expires 31 March 2027.
- Cars cannot use the Annual Investment Allowance or full expensing. Vans and other commercial vehicles can, giving 100% of the invoice value in year one.
- Voluntary termination reaches the 50% point sooner than on PCP, because there is no balloon inflating the total amount payable.
- Once you have paid one third of the total amount payable, the lender cannot repossess without a court order.
How hire purchase works
You pay an initial deposit, which can be cash or a part-exchange, then fixed monthly instalments over a term that is usually two to five years. The interest rate and the length of the agreement are fixed at the outset, so the monthly figure does not move.
The lender owns the vehicle during the agreement. You have possession and use of it, and once the last payment is made, together with a small option-to-purchase fee, title passes to you.
Because you are financing the whole value of the vehicle rather than just its depreciation, monthly payments are higher than on a PCP or a lease of the same car. What you get for that is ownership, no mileage restriction, and no argument at the end about scratches.
Some agreements allow a larger final payment, sometimes called a balloon, to reduce the monthlies. That makes hire purchase behave more like a PCP, with one important difference: on hire purchase you are obliged to pay it, because ownership is the point. There is no option to hand the vehicle back instead.
For businesses: capital allowances, and what changed in April 2026
This is the reason a company chooses hire purchase over a lease. Because your business ends up owning the vehicle, it goes on your balance sheet and you claim the capital allowances on it rather than deducting rentals.
Two changes landed recently and both matter to the arithmetic.
The main rate writing down allowance reduced from 18% to 14%, from 1 April 2026 for corporation tax and 6 April 2026 for income tax. That applies to cars at or below 50g/km CO2. Relief on those vehicles is now slower than it was, which narrows the gap between buying and leasing.
The 100% first-year allowance for new zero-emission cars continues, but it expires on 31 March 2027 for corporation tax and 5 April 2027 for income tax. It allows the full cost to be deducted in year one, which is by far the most valuable relief available on a car. If a zero-emission vehicle is in your plans, the timing of that expiry is worth building into the decision.
Cars cannot use the Annual Investment Allowance or full expensing, regardless of emissions. Commercial vehicles are not cars for this purpose and generally can, which is worth a section of its own below.
| Vehicle | Position |
|---|---|
| New zero-emission car | 100% first-year allowance, until 31 March 2027 |
| Car at or below 50g/km CO2 | Main pool writing down allowance, now 14% |
| Car above 50g/km CO2 | Special rate pool, 6% |
| Used or second-hand electric car | No first-year allowance. Main pool instead |
| Any car, Annual Investment Allowance | Not available |
| Van, single-cab pickup or other commercial vehicle | 100% of the invoice value in year one, via the Annual Investment Allowance or full expensing |
| Main-rate asset where AIA and full expensing are unavailable | New 40% first-year allowance, from 1 January 2026 |
| Double-cab pickup, from April 2025 | Treated as a car. No AIA |
Rates change at Budgets. Our company car tax guide carries the current figures and is the page we keep updated, so this one does not repeat them. Speak to your accountant about your own position before deciding.
The 100% year-one deduction, and why it only exists if you own
This is the strongest tax argument in vehicle finance and it is regularly buried, so here it is plainly.
A van, single-cab pickup or other genuine commercial vehicle can usually be deducted in full, in the year you buy it. Commercial vehicles are not "cars" for capital allowance purposes, so they are not caught by the restrictions that apply to cars. Two routes get you there:
- Annual Investment Allowance. Up to £1 million a year at 100%, available to companies, sole traders and partnerships alike, and it works on second-hand vehicles as well as new.
- Full expensing. 100% in year one, but companies only, and the vehicle must be new and unused.
A new, unused, fully electric car can also be deducted in full in year one, through the 100% first-year allowance, which runs until 31 March 2027 for corporation tax and 5 April 2027 for income tax. Note the conditions: it must be new, and it must be zero-emission. A second-hand electric car goes into the main pool at 14% instead.
From 1 January 2026 there is also a new 40% first-year allowance on main-rate assets where the Annual Investment Allowance or full expensing are not available, which mainly helps unincorporated businesses that have used up their £1 million and businesses acquiring assets for leasing. It does not apply to cars.
The part that decides which agreement you choose: none of this is available if you lease. Capital allowances belong to whoever is treated as acquiring the vehicle. On contract hire or a finance lease that is the funder, and your business deducts the rentals instead. On an ownership route the allowances are yours. For a company buying a van outright, or a new electric car, that difference in year one can be substantial.
One caveat worth knowing: for sole traders and partnerships the claim is restricted to the business-use proportion, so private mileage reduces it. Companies are not restricted in the same way. Your accountant will confirm your position.
Hire purchase is the most direct route to this relief. There is no optional balloon and no decision to make at the end, so the vehicle is unambiguously yours from the outset and stays on your books. The trade is that you are committed: when you eventually dispose of the vehicle, a balancing charge or allowance arises on the difference between the sale proceeds and its written-down value, and if you claimed 100% in year one that balancing charge can be the whole sale price. That is not a reason to avoid the relief. It is a reason to know it is coming.
Double-cab pickups: the rules changed in April 2025
If you buy pickups on hire purchase, this affects you directly and it is still widely reported incorrectly.
The old test was payload, and it worked the opposite way round to instinct. A payload of one tonne or more made a double-cab a van, which was the favourable outcome. Under one tonne was already a car.
Since 1 April 2025 for corporation tax and 6 April 2025 for income tax, payload is no longer the test for direct tax. Vehicles are assessed on primary suitability, and because a double-cab carries people and goods equally well, most are now treated as cars. That means no Annual Investment Allowance, and writing down allowances at the rate for their emissions, which for most pickups is the 6% special rate.
VAT is the exception. Payload remains the VAT test, so a double-cab with a payload of one tonne or more still qualifies for VAT recovery. Two tests, two different answers, on the same vehicle.
If you purchased, leased or ordered a double-cab before 6 April 2025, the previous treatment continues until the earlier of disposal, lease expiry or 5 April 2029. Anything already on the fleet is protected.
Single-cab pickups and panel vans are unaffected. They are genuinely constructed primarily for carrying goods and remain commercial vehicles throughout.
For private buyers: your rights under the Consumer Credit Act
Hire purchase to a private individual is a regulated credit agreement, and that gives you protections a lease does not.
Voluntary termination, and why it arrives sooner than on a PCP. Under sections 99 and 100 of the Consumer Credit Act 1974, once you have paid at least 50% of the total amount payable you can hand the vehicle back and owe nothing further on the finance. On a PCP the total amount payable includes a large balloon, which pushes the halfway point close to the end of the term. On hire purchase there is usually no balloon, so you reach 50% around the middle of the agreement. That is a genuine practical advantage of hire purchase and it is rarely pointed out.
The one-third protection. Once you have paid one third of the total amount payable, the lender cannot repossess the vehicle without a court order. This is Section 90 of the Act. If a lender repossesses after that point without a court order or your consent, the agreement terminates and you are entitled to recover what you have paid. Most people have never heard of this.
Early settlement. You can ask for a settlement figure at any time, and it must include a rebate of future interest.
Voluntary termination protects you from future instalments. It does not protect you from charges for damage beyond fair wear and tear. Hire purchase has no mileage limit, so there is no excess mileage charge to worry about.
How we are paid
Intelligent Vehicle Finance is a credit broker, not a lender. We receive a commission from the lender when an agreement completes. The amount can vary depending on the product and the provider.
You have the right to ask us what commission we will receive before you commit to anything, and we will tell you. We would rather you asked.
Hire purchase is a regulated credit agreement, and commission disclosure on regulated credit is held to the highest standard by the Financial Conduct Authority. That is why this sits in the body of the page rather than in small print.
How hire purchase compares
| Hire purchase | PCP | Contract hire | |
|---|---|---|---|
| Do you own it? | Yes, automatically | Optional, pay the balloon | No |
| Capital allowances (business) | Yes | Not typically | No, rentals deducted |
| Mileage limit | None | Yes | Yes |
| End-of-term condition charges | None | If handed back | Yes |
| Voluntary termination | Yes, 50% reached sooner | Yes, 50% reached later | No |
| Monthly cost | Highest | Lower | Usually lowest |
| Risk on used value | Yours, it is your vehicle | Lender's, via the GMFV | Funder's |
See PCP, contract hire, finance lease and personal contract hire for the detail on each.
For a business, there is one more option worth knowing about. Business contract purchase gives you the same capital allowances as hire purchase, but the final balloon is optional rather than compulsory, so you can hand the vehicle back if its value has moved against you.
Lease purchase and conditional sale
You may see these terms alongside hire purchase. Lease purchase is hire purchase with a compulsory larger final payment, which lowers the monthlies but leaves a sum to find at the end. Unlike a PCP balloon it is not optional, because ownership is the point of the agreement. Conditional sale is very similar to hire purchase, with title passing automatically on the final payment rather than on exercising an option. Both are regulated credit agreements where the customer is an individual, and both carry the same statutory rights.
When hire purchase is right, and when it is not
It suits you if you want to own the vehicle, your mileage is high or unpredictable, you intend to keep it beyond the finance term, you want the vehicle on your balance sheet and the capital allowances that come with it, or you are financing a commercial vehicle where those allowances are more generous.
It is not the right answer if the lowest monthly cost is what matters, in which case contract hire or personal leasing will be lower. Or if you change vehicles every three years anyway, because you are paying for value you will not use. Or if you want protection from a falling used market, since on hire purchase that risk is yours from the moment you take delivery.
That last point deserves saying plainly. When you own a vehicle, you carry what it is worth. If used values move against you, that is your loss rather than a funder's. It is the trade you make for ownership, and it is worth understanding before you sign rather than after.
How Intelligent Vehicle Finance arranges it
Intelligent Vehicle Finance is a credit broker. We do not lend. We take your requirement, compare it across our panel of lenders, and put the options in writing so you can compare properly.
On hire purchase the figures that matter are the total amount payable, the term, and whether a final payment is being used to flatter the monthly. We will show you the total cost alongside the monthly, because a longer term always looks better month to month and rarely is overall.
Intelligent Vehicle Finance is also part of Global Vehicle Group, whose brands have funded more than 70,000 vehicles, so behind the personal service sits genuine group scale.
Speak to us on 01752 429950, or request a callback.
Frequently asked questions
Can my business claim capital allowances on a hire purchase vehicle?
Yes. This is the main reason a company chooses hire purchase over a lease. Because your business ends up owning the vehicle it goes on the balance sheet and you claim capital allowances rather than deducting rentals. A new zero-emission car currently attracts a 100% first-year allowance, but that expires on 31 March 2027 for corporation tax. Cars at or below 50g/km go into the main pool, where the writing down allowance fell from 18% to 14% in April 2026. Cars above 50g/km go into the special rate pool at 6%.
Can I use the Annual Investment Allowance on a car?
No. Cars are excluded from the Annual Investment Allowance and from full expensing regardless of their emissions. Only writing down allowances or, for new zero-emission cars, the 100% first-year allowance are available. Commercial vehicles are treated differently and can generally qualify, which is one reason vans and cars need to be considered separately.
When can I use voluntary termination on hire purchase?
Once you have paid at least 50% of the total amount payable, under sections 99 and 100 of the Consumer Credit Act 1974. Because hire purchase usually has no large balloon inflating the total, you generally reach that point around the middle of the agreement rather than near the end as on a PCP. You hand the vehicle back and owe nothing further on the finance, though charges for damage beyond fair wear and tear can still apply.
Can the lender repossess my vehicle if I fall behind?
Once you have paid one third of the total amount payable, the lender cannot repossess without a court order. That is Section 90 of the Consumer Credit Act 1974. If a lender takes the vehicle after that point without a court order or your consent, the agreement is terminated and you are entitled to recover the sums you have paid. Before the one third point that protection does not apply, which is another reason to contact the lender early if you are struggling rather than waiting.
Is there a mileage limit on hire purchase?
No. There is no mileage limit and no end-of-contract condition inspection, because the vehicle is not going back to anybody. That makes hire purchase well suited to high or unpredictable mileage, and it is one of the clearest practical differences from a PCP or a lease.
What is the difference between hire purchase and PCP?
Hire purchase finances the whole value of the vehicle and you own it at the end automatically. PCP finances only the depreciation, leaving an optional balloon to pay if you want to keep it. Hire purchase costs more each month, has no mileage limit and builds ownership faster. PCP costs less each month, limits your mileage, and protects you from a falling used market through the guaranteed future value. Which is better depends entirely on whether you want to own the vehicle.
Are double-cab pickups still treated as vans on hire purchase?
For VAT, yes. Payload remains the VAT test, so a double-cab with a payload of one tonne or more still qualifies for VAT recovery. For capital allowances and benefit-in-kind, no. Since April 2025 those follow primary suitability rather than payload, and most double-cabs are treated as cars, which means no Annual Investment Allowance. Vehicles purchased or ordered before 6 April 2025 keep the previous treatment until disposal or 5 April 2029.
Does Intelligent Vehicle Finance receive commission on hire purchase?
Yes. We are a credit broker, not a lender, and we receive a commission from the lender when an agreement completes. The amount can vary depending on the product and the provider. You have the right to ask what we will receive before you commit, and we will tell you.
This page is general information and is not tax, accounting or financial advice. Hire purchase is a regulated credit agreement. Tax treatment depends on individual circumstances and on rates and thresholds set by HMRC, which can change at future Budgets. Please speak to your accountant about your company's position. The terms of your own agreement, including the annual percentage rate, the total amount payable and any settlement figure, are set by the lender and will be set out in your documentation before you commit. Please read it. Intelligent Vehicle Finance is a credit broker, not a lender, and receives a commission from the lender or funder when an agreement completes. A trading style of XLCR Vehicle Management Ltd, authorised and regulated by the Financial Conduct Authority (FRN 315268). Subject to status and availability. Reviewed by Stacey Smith, Brand Director, Intelligent Vehicle Finance. Last updated: July 2026.