Hire purchase agreements
Higher purchase agreements offer a convenient and cheap car finance option for that dream car you’ve always wanted but might not have the money for immediately, or for which you would prefer to pay for over a longer period. However, if you are unfamiliar with lending and borrowing agreements, they may seem daunting and you may wonder if there are any hidden costs or what might happen if you can no longer afford the agreement. This guide will answer these questions and explain in simple terms what a hire purchase agreement is and why you might want one.
In This Guide:
- What are hire purchase agreements?
- What are the advantages of hire purchase agreements?
- What are the risks involved?
- How can I find the best hire purchase agreements?
What are hire purchase agreements?
Hire purchase agreements are contracts which are signed by a buyer and a bank or lender. They allow the buyer to purchase a vehicle which they may not have funds for immediately by borrowing the shortfall from a bank or lender. This loan is then paid back by the buyer, usually in monthly instalments, over an agreed period typically between one and five years. You’ll usually need to put down a deposit on the car you’re buying, which is usually around 10% of the value of the vehicle. Unlike a traditional loan, you won’t own the goods until the final payment has been made.
What are the advantages of hire purchase agreements?
- Hire purchase agreements are one of the most popular car finance options as the fixed monthly instalments offer a much more affordable alternative to spending a huge amount of money in one go as the initial outlay will only be for the deposit.
- The interest rate which is set at the outset of the agreement is fixed for the entire duration of the agreement.
- Some hire purchase agreements allow you to return the car once you have paid back half of the cost.
- Hire purchase agreements are a great way to get a cheap car loan if you have a low credit score, as whilst an unsecured loan requires a good credit score, under this agreement the car serves as collateral for the loan.
- Under these agreements you can finish paying the outstanding balance of the loan early, for example if your financial situation improves during the duration of the agreement.
What are the risks involved?
- Legally, until you’ve made your final payment, the bank or lender will keep the certificate of ownership. This means if your financial situation worsens and you cannot afford your payments, you may lose your vehicle.
- Since you won’t legally own the vehicle, you can’t sell or modify the car without getting permission. However, you won’t have any restrictions on the use of the vehicle.
- If you sign up to a shorter agreement, the monthly instalments may be higher than other car finance options.
How can I find the best hire purchase agreements?
There are two main ways you can sign up to a hire purchase agreement. Firstly, through the dealership you’re buying the car from. Although they may not offer you the best possible terms, this may be most convenient way. The second option is to get finance through an online broker.
The most important thing when signing up to a hire purchase agreement is to make sure you fully understand the terms you’re signing up to. When signing up to a new car finance deal always be sure to check:
- The total amount you will pay
- The interest fees
- The cost of the deposit
- Any extra costs
When searching online, offers can vary significantly so be sure to use our car finance comparison tool to find the best deal suited to your needs.