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What is hire purchase? Explain the advantages and disadvantages

  • Advantages: usually the cheapest form of financing to buy a car outright, HP debt is paid off faster than PCP, thus reducing interest rates, flexible repayment terms
  • Defect: high monthly payments, not designed for frequent car changes, you don’t own the car until you make the final payment

A hire-purchase (HP) financing arrangement is calculated to divide the cost of the vehicle, minus any deposits, into a series of monthly installments. HP plans tend to require higher monthly payments than some alternatives, but most dealers will offer hire-purchase deals on both new cars and trucks, and old, this will help reduce the overall cost. One of the biggest advantages of HP financing is that you get to own the car at the end of the contract.

These programs, available with every mainstream automaker and some second-hand dealers, are even available to buyers with poor credit ratings, though needless to say if you know yourself. will not be able to repay the debt, you should avoid withdrawing any financials.

The reason hire-purchase financing is available to more people is because the loan is secured by the vehicle, so it acts as collateral to cover the cost of any missed payments. The two advantages of the HP deal are that the monthly payments will be lower than with an unsecured personal loan (or you can get a higher-end car with the same payout), and unlike like PCP finance has no final amount to pay at the end.

A deposit will be required to arrange the HP package and this is usually around 10% of the car’s list price. However, as an incentive to get you behind the wheel, a deposit from the dealer will provide a reasonable discount on this cost, while models approaching the end of production life may not even need it. Deposit to help transfer existing stock. However, with this type of deal, you can only buy a car from an existing stock, instead of speculating on a new model.

Securing a rental car loan helps reduce monthly payments, but if you don’t make your payments on time, the car could be forfeited.

As with Unsecured LoansLease agreements can be set up to run on different monthly repayment terms, but the main difference is that you won’t own the vehicle until the final payment is made, rather than owning the vehicle. own the car as soon as you transfer your payment .

Interest rates are fixed for the life of your agreement with HP, so you’ll know how much you need to pay back each month, and transactions are often easy to arrange at a dealer or over the phone.

Click the links below or at the top left of this page to get a complete guide to each of the key auto financing options…

How to pay for your new car

View hire-purchase deals and get exclusive quotes for any new or used vehicle at our sister site

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