Hire Purchase Explained



Hire purchase deals split the cost of a new car, and are a favourite method of new car finance in the UK

For: Low deposit payments and interest rates, flexible repayment terms. 
Against: Shorter term deals can be expensive, you don't own the car until you make the final payment.

Hire purchase (HP) is an easy way to buy a new car at a reasonable price, and these schemes will be available to most customers through the dealer – even buyers with poor credit ratings. This is because the loan is secured against the car, with the vehicle used as collateral to cover the cost of any missed payments. Two advantages of an HP deal are that the monthly payments will be lower than for an unsecured personal loan, plus there’s no final lump sum to pay at the end, as you get with deals. 

Securing the hire purchase loan against the car helps to keep the monthly payments lower, but if you don't make the payments on time the car could be reposessed. A deposit will usually be required to arrange the HP plan, and this is usually around 10% of the list price. The dealer will sometimes offer a deposit contribution to sweeten the deal, while some special offers on models that are nearing the end of their production life could see no deposit required.

As with unsecured loans, the hire purchase agreement can be set to run over different monthly repayment terms, but the main difference is that you won't own the car until the final payment is made. 

The interest rates are fixed for the duration of the HP agreement, so you'll know how much you'll need to pay back every month, and the deals are usually easy to arrange at the dealership or over the phone.