Hire purchase (HP) is exactly what it sounds like – a hire agreement which gives you the option to own the vehicle at the end of the agreement.
These contracts are quick to arrange, they are normally fixed cost, meaning that the APR (annual percentage rate) is set before the contract begins. The loan period is also fixed generally from 12 to 60 months and the finance agreement is secured against the vehicle being purchased, which means the leaders can be flexible in the terms and conditions they offer.
Hire purchase is one of the simplest ways to buy a car. Under HP agreements, there’s a deposit to pay, typically 10 per cent though you can apply as much deposit as you like, followed by the fixed monthly payments.
The car is owned by the HP company until the final payment (and any ‘option to purchase’ ownership-transfer fee) has been paid. Up to that point, the person making the payments has no legal right to sell the vehicle, without provision to pay back the finance company.
If you need to sell the car before the end of the agreement, you’ll have to repay the outstanding debt first (and ‘early settlement’ fees may apply) should the vehicle not be worth the settlement figure required you will be responsible for making good the shortfall.
Check out the detail on current manufacturer finance deals. These might include interest-free or low APR rates or deposit contributions.
A Conditional Sale agreement is exactly the same as hire purchase, except that you automatically own the vehicle once the finance has been repaid in full.
IS HIRE PURCHASE SUITABLE FOR ME?
A hire purchase may be suitable for you if:
- You like a simple one-stop shop: The dealer will arrange everything.
- You like the convenience of ‘package’ deals.
- You’re happy to do some cost-comparison research.
- You want competitive fixed interest rates.
- Eventual ownership is important to you.
- Your budget and circumstances suit fixed monthly repayments.
- You like low-risk credit secured against the car only.
- You don’t mind not owning the car until the debt is fully repaid.
POINTS TO CONSIDER
Before deciding whether or not to go ahead with a hire purchase on a car, there are a few more factors worth considering first:
- You do not own the vehicle until the final payment has been made to include any administration fees.
- Your vehicle is at risk of repossession if you do not maintain the payments as set out in the agreement.
- You must have fully comprehensive insurance for the vehicle.