Hire Purchase (HP)

How does HP work? 

Hire purchase is a way of paying for a new or used vehicle. You’ll pay an initial deposit that is agreed beforehand, then pay off the remaining value of the vehicle in monthly instalments, which are also set in advance.

Essentially, you are paying off a loan that is secured against the vehicle you’re buying and won’t own the car until all your monthly payments are made. In short, you’re hiring the vehicle for a contracted amount of time, then you’ll have the choice to buy or return it to the dealership once this time is up.

When the agreement starts 

  • When you buy a car on hire purchase, you’ll start by agreeing on the amount you want to borrow. This is typically based on the total price of the vehicle, minus any deposit required.
  • You’ll undergo a consultation with the dealership, who’ll run through the agreement and discuss any alternative financing options with you. They may be able to provide details about any promotions running that could contribute to your deposit. 
  • Keep in mind that you may also be able to part-exchange your old car, to help cover this deposit. The amount that you could receive will depend on the existing value of your car.
  • Once the final loan amount is finalised, the dealership will contact the finance company or broker, before completing a Hire Purchase application based on this amount. You’ll then pay the deposit and begin making your monthly payments on the agreed start date.

What happens at the end of the agreement? 

  • The hire purchase contract ends once all repayments have been made and the agreed sum has been paid in full. You’ll then be given the choice to return the vehicle to the dealership or purchase the car, becoming the outright owner.
  • If you decide that you want to keep your vehicle, you may have to pay an ‘Option to Purchase’ fee. This covers admin costs to the finance company for transferring ownership over to you and the amount varies depending on the company, vehicle and dealership.
  • Keep in mind that if you agreed to a conditional sale Hire Purchase agreement, ownership passes to the buyer automatically, as soon as the loan is fully repaid.

Advantages of Hire Purchase 

  • Makes budgeting easier, as you have a set monthly payment to make.
  • Allows you to spread the cost of buying a new or used car.
  • Flexible with a choice of payment terms, typically between 12 and 60 months.
  • A low deposit can be paid at the start of the agreement.
  • There won't be any excess mileage charges, no matter how many miles you drive.
  • As the car is used to secure the debt, hire purchase car finance could be easier to get, compared to a standard loan – particularly for those with poor credit.

Things to remember

  • Monthly payments are usually higher than some other finance options as you're paying off the full value of the car.
  • You can’t claim ownership of the vehicle until you’ve paid the full sum.
  • As you don’t have outright ownership, you can’t customise, sell or modify the car in any way, unless you get permission from the finance company.
  • Failure to keep up with payments may result in the vehicle being repossessed.
  • You can’t transfer ownership of the vehicle until you take ownership of it at the end of your contract.

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