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What is Hire Purchase?


Hire Purchase is a way for private individuals or companies to purchase a new or nearly-new vehicle outright. You usually pay a deposit and pay off the car's value in monthly instalments, with a loan secured against the vehicle.  You do not own the vehicle until you have paid the last instalment of the loan.

How does Hire Purchase work?

Customers put down an initial deposit (typically around 10% or more of the vehicle’s value) and then make monthly payments for a fixed period – typically between 12 to 60 monthly – at the end of which they become the car's legal owner.

Transfer of ownership may require a relatively small fee, of £100 to £200, at this point. The more deposit you put down on a hire-purchase deal, the lower your monthly payments are and vice-versa.

With hire purchase, it may also be possible to become the car owner earlier than agreed by making a lump-sum payment for the remainder of the loan.

What are the key benefits of Hire Purchase?

• Flexible repayment terms (from one to five years) to help fit in around your monthly budget

• Relatively low deposit required, normally 10% of the vehicle’s price

• Unlike with PCP deals, hire purchase doesn’t require a large final payment to be made to become the owner of the vehicle

• Fixed interest rates so that you know exactly what you’re paying each month of the course of the term

• If your credit score isn’t that high it may be easier to get a hire purchase than an unsecured loan, as the car is used as collateral for the loan

• Hire purchase terms don’t usually come with mileage restrictions

What are the disadvantages of Hire Purchase?

• You don’t own the vehicle until you’ve made your final payment, which means that if you get into financial difficulties, the finance provider could take your car or van away

• Monthly payments can sometimes be higher than Personal Contract Purchase or leasing deals

• You can’t sell or modify the vehicle during the term without obtaining permission first

• Your deposit and term will affect your monthly payment amounts i.e. the lower the deposit the higher the monthly payments

• It can be a more expensive option if you’re looking for a short-term agreement

• Hire-purchase customers bear more of a risk of depreciation than with PCP. If the vehicle’s value depreciates faster than expected, you would still have to continue making the pre-agreed monthly payments and ultimately take ownership of the car or van

• Until you’ve paid a third of the total amount the finance provider can repossess the vehicle without a court order