Everything you need to know about Hire Purchase
HIRE PURCHASE EXPLAINED
So, you’ve decided that you want to get a new vehicle and you know that at the end of your agreement you want to own it? Hire Purchase might be just what you’ve been looking for.
A Hire Purchase (HP) is actually considered a finance agreement, not a lease in the traditional sense. The main difference between HP and something like a Contract Hire lease, for example, would be that at the end of the contract you own the vehicle outright.
In layman’s terms, a HP agreement involves making fixed monthly payments for between 1 and 5 years. Once the final payment has been made, the vehicle is yours. Think of it more like a loan you’re paying back, rather than renting a car for that time period.
THE PRO’S OF HIRE PURCHASE
- At the end of the agreement the car is yours outright
- It’s a fixed rate loan which will remain unaffected by fluctuating interest rates
- Interest rate charges tend to be low as you’re taking the vehicle at the end of the contract
- You can reduce monthly costs with the addition of a ‘balloon payment’ (a larger sum at the end of the contract to pay off the rest of the finance)
- The deposit is often “optional” or can be chosen by you
- There are no mileage restrictions
- If you’ve got the cash to pay the final amount then the contract can be settled early (there may be a rebate of the interest, made under the Consumer Credit Act 1974)
THE CON’S OF HIRE PURCHASE
- Monthly payments tend to be higher than on a lease
- The Finance House will still, technically, own the vehicle until the final payment is made
- Insurance needs to be fully comprehensive and until the final purchase is made and you own the vehicle outright, it’ll be slightly more expensive (similar to a lease)
HOW IS A HIRE PURCHASE PRICE DETERMINED?
Hire Purchase is calculated by taking the full price of the vehicle, then deducting any deposit you decide you would like to pay and any balloon payment decided on. The remaining cost is then split into the number of months the contract will last for (usually between 12 or 60 months). This total is then your monthly payment.