Whilst Personal Contract Purchase usually reigns supreme when it comes to the most popular way to finance a car. Sometimes hire purchase gets overlooked as a great way to get car finance but there’s no need. There are so many reasons why drivers like hire purchase, from the ability to own the car at the end to fixed monthly payments and interest rates, HP can be a really flexible way to get a car! Its also easy to sort and you can obtain HP through a finance broker or by visiting your nearest car dealer. The guide below looks at the positive of hire purchase how it works and also a few factors to consider before you commit to signing on the dotted line.
How does hire purchase work?
Hire purchase car finance is a car finance agreement which can be offered on both new and used cars. It’s a secured loan which means the lender buys the car on your behalf from the dealer and owns the car during the agreement. You then make monthly payments back to the lender with interest until the end of the term. You can choose your monthly budget and tailor your deal to how much you can afford by shortening or lengthening the term. Usually drivers spread the cost of hire purchase cars over 3-5 years and increasing the loan term will reduce your monthly payments but may see a higher interest rate offered. You can obtain a hire purchase deal from participating car dealers, brokers or a car finance company in the UK.
Why is hire purchase good for drivers?
Hire purchase car finance deals are really beneficial to drivers. There are a number of reasons why drivers choose this form of finance over others.
- You know what you’re paying each month. Usually, hire purchase cars come with fixed interest rates and fixed monthly payments. This means your payments and interest rate won’t change throughout the agreement, even if the base rate of interest in the UK changes, your interest rate won’t. This is great for drivers who need to budget their finance payments every month and can expect them to stay the same.
- There’s no mileage or damage limitations. Most drivers enter into a PCP with the intention of handing the car back. With this in mind, lenders will need to set the value of the car at the end of the deal, you will need to set a mileage limit at the start of the agreement and promise to keep the car in good condition. HP cars don’t have any restrictions when it comes to mileage limits and there’s no additional charges to pay at the end of the deal if you exceed the terms of the agreement.
- Small option to purchase fee to keep the car. There’s no large balloon payment to pay to take ownership of the car and instead a small option to purchase fee can be made. This fee is usually similar or just slightly higher than the monthly payments you have agreed to so shouldn’t break the bank! Once all payments and the final payment have been made, the car is yours to keep!
- Flexible deposits can be accepted. You may need to check with the lender first but usually they will accept hire purchase with no deposit to pay. When hire purchase fort came to the market, you had to pay a 10% deposit to secure the car but now you can benefit from flexible deposit options.
What should you consider before committing to hire purchase?
It wouldn’t be fair to only discuss why hire purchase is good for drive without considering a few factors which may hold you back.
- A secured loan means you don’t own the car. This isn’t the best finance to choose if you want to own the car from the start. A secured loan also means if you fail to keep up with your repayments, the lender has the right to take the car off you.
- Hire purchase requires you to pay interest on your loan which makes it more expensive than if you were to buy the car outright with cash.
- If you get hire purchase with bad credit, you can face a higher level of interest rate. Higher interest rates make car finance more expensive and the higher the risk to the lender, the higher the interest they might set.
