What is Hire Purchase and is it for You?

Among life’s more significant investments is a new car. Fortunately, motorists have several options when it comes to spreading this cost. Each offers distinct advantages and disadvantages. 

Among the more popular these is a car hire purchase. This is a form of long-term lease which provides an option to buy outright at the end. This is an arrangement that suits many drivers – but is it right for your circumstances? 

Let’s take a look. 

How does Hire Purchase work?

To begin with, you’ll first need to put down a deposit on your car, which typically amounts to around a tenth of its value. The remainder can then be paid off in installments, which can be as large or as small as you require (typically, up to a maximum of five years). If you’re buying a new car, then you may find that the rate of APR is especially compelling. Since your loan is secured against the car itself, you won’t own outright until you’ve made the last payment. You might therefore think of a higher purchase as roughly analogous to the mortgage you might put on a house: the car remains the property of the lender until it’s been paid for. So, what are the pros and cons?

The Pros of Hire Purchase

There are many upsides to this practice. To begin with, the deposit is relatively affordable, and the rate of repayment tends to be flexible. The interest rate, on the other hand, is fixed, and as such you’ll have the security of knowing exactly what you’re going to pay every month. Hire purchases tend to be more accessible than other forms of financing, especially for people with poor credit histories. Unlike a traditional rental, there’s no need to worry about mileage restrictions, or of finding the money to purchase the car outright at the end of the term. 

If you get midway through the payments, you find that your circumstances have changed. You might be able to return the car without making any further payments – although in doing so, you would obviously lose out in the long-term. 

The Cons of Hire Purchase

So, what are the cons? Firstly, you won’t own the car until the very last payment is made, which puts you at risk of losing the car if you can’t make a payment along the way. You won’t be able to sell or modify the car, either, unless you first obtain the permission of the provider. Despite the consistency of the payments, the amount you pay every month will tend to be higher than it otherwise would be with alternative sources of finance. Generally speaking, car purchase tends to be more expensive in the short term, thanks to the initial deposit – but this can be offset by financing, of the sort provided by Go Car Credit.

There’s a little bit of variety between hire purchase providers. Before signing the contract, ensure that you are fully acquainted with all of the terms and conditions.