Hire Purchase (HP)
Hire purchase is a type of car finance in which you can hire a car by making a small deposit and buy it at the end by making monthly payments over a period of time. The deposit that you have to pay is usually 10% of the car’s value. For, example if the car’s value is £10,000 then the deposit amount will £1000. The rest of the amount you have to pay over 2 or 3 years according to your agreement. After, making the repayments, you have to make a final payment which gives you full ownership of the car.
You can pay more deposit if you want, if you do so you will be charged with low monthly payments. So, higher the deposit amount, lower will be your monthly repayment amount. This will help you to get the ownership of the car earlier than normal.
Who Offers Hire Purchase Car Finance?
There are a number of finance companies in the UK that offer their services if you want to buy a new car or a used one. Also, the dealers themselves also provide you with hire purchase contracts.
However, it is important to shop around, as not all the lenders provide a loan for a used car. Also, the cars on which they provide a loan can be limited. So find a finance company or a dealer who provides you with an affordable deal on your dream car.
How Much Can I Borrow in Hire Purchase?
The most common and favourite question of everyone is “How much can I borrow to buy a car?”. This depends on the car you want to buy and your credit rating. If you have a bad credit rating the finance company can provide you with a loan. But they might take away your car if you miss your monthly repayments.
Advantages of Hire Purchase
- Hire Purchase car finance allows you to spread the cost over years instead of paying all the money upfront. This is beneficial for people who do not have a lot of money in savings but want to purchase a car.
- The finance company charges low interest rates on this finance, and also they are fixed and do not change during your contract term.
- When it comes to HP, there is no mileage allowance or restrictions whatsoever. You can drive your car as much as you want without worrying about the distance you covered.
- A hire purchase car finance has a low final settlement fee for buying the car in the end compared to the other car finance options.
Disadvantages of Hire Purchase
- In hire purchase, if you fail to keep up with the payments, you risk losing your car. The finance company can take away your vehicle if you miss your few monthly payments.
- The monthly repayment amount tends to be more than other forms of car finance like PCP (Personal Contract Purchase).
- You face the risk of depreciation more than the PCP, as buying the car is optional in PCP finance. In HP car finance you have to buy the car at the end even if its value decreases.
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