Hire Purchase Explained


What is Hire Purchase?

Hire Purchase (HP) is a hiring agreement between you and the finance company.

The loan is secured against the vehicle over a set period between 1 and 5 years, with fixed monthly repayments including interest.

During or at the end of agreement (if the balance has been paid in full), you have the option to own the vehicle by paying an additional sum called the Option to Purchase Fee, you will then own the title to the car and become the legal owner.

You are the registered keeper of the car and responsible for insuring and maintaining it, but the finance company remains the legal owner until the amount you borrowed has been fully repaid.

Summary

Initial Payment / Deposit You may be asked to pay an initial payment / deposit. 
Fees There is usually an arrangement fee charged by the lender and any fees can be included as part of the regular repayments.
Restrictions There are no mileage restrictions under a HP agreement. Lenders may impose certain restrictions on the use and location of the vehicle.
Ending the Agreement You can make an early repayment to your finance provider before the end of the agreement. At the end of the agreement or once all repayments have been made including the option to purchase fee, title to the vehicle passes to you.

Advantages of Hire Purchase

  • It's flexible – with terms from 1-5 years (the longer the term, the more interest you’ll pay).
  • Once you've made all payments including the option to purchase fee, you will own the car.
  • HP can be easier to get than a standard, unsecured loan for people with poor credit histories (as the loan is secured against the car).

Disadvantages of Hire Purchase

  • Monthly payments are higher than for Personal Contract Purchase and Leasing deals.
  • You don't own the car until you make the final payment.
  • You cannot sell or modify the car over the contract term without the finance company's permission.
  • If you fail to keep up all your payments, the finance company can repossess the car.