A Hire Purchase (HP) agreement is a popular and straightforward way to finance the purchase of a car. This type of agreement is essentially a hire arrangement between you and a finance company, designed to help you spread the cost of your vehicle over time.
Hire Purchase agreements are a great option for those looking to gradually pay off their car while working towards full ownership. Be sure to carefully review the terms and ensure the repayment plan aligns with your financial situation before committing.
When you choose a Hire Purchase agreement, you commit to paying a fixed monthly installment for a predetermined period, usually ranging from 1 to 5 years. These payments include both the principal loan amount and any interest charges. The car itself serves as security for the loan throughout the duration of the agreement.
While you’ll be driving the car and responsible for its upkeep during the agreement, the finance company retains legal ownership of the vehicle until you’ve made the final payment and fulfilled all contractual obligations. This means that if you default on the payments, the finance company has the right to reclaim the car.
At the end of the agreement, once you’ve paid off the full balance, you’ll have the option to take full ownership of the car. To finalise this, you’ll need to pay an additional charge, often called the Option to Purchase Fee. During the agreement, the lender registers an interest in the vehicle, which gives them the legal right to reclaim it if payments are not made. Once you’ve completed all payments, including the Option to Purchase Fee, the lender will remove their registered interest, and the car will officially be yours to own outright.
It's adaptable – you can choose terms from 1 to 5 years, but remember, the longer you take, the more interest you'll pay.
After you've made all the payments, including the option to purchase fee, the car becomes yours.
Hire Purchase can be more accessible for people with not-so-great credit histories, as the car secures the loan. This makes it easier to get compared to a regular loan without collateral.
Monthly payments are more expensive compared to Personal Contract Purchase and Leasing agreements.
You only become the owner of the car when you complete the final payment.
During the contract period, you can't sell or modify the car without getting permission from the finance company.
If you fail to keep up all your payments, the finance company can repossess the car.
