What is Hire Purchase?

With Hire Purchase you can put down an initial deposit if you wish and then make monthly payments for a fixed period, typically 2 to 5 years. Some vehicles, for example motorhomes, allow a longer period to pay the loan over due to their lifespan, however the maximum loan period for most cars and vans is 5 years and will also depend upon the age of the vehicle at the start of the agreement if it is used. At the end of the agreement you become the legal owner as long as all the payment have been made (including any option to purchase fee). Payment of the option to purchase fee transfers ownership of the vehicle from the lender to you.  If you do not wish to keep the vehicle and you have made all the repayments to the end of the contractual term, you can simply hand the vehicle back to the lender at this point with the option not to purchase and own it.  Most people opt to pay the small option to purchase fee though as the vehicles value is usually far greater.

The more deposit you put down on a Hire Purchase deal, the lower your monthly payments are and vice-versa. Please see our finance calculator to see how putting a larger or smaller deposit down reduces or increases the monthly payments on your loan.  A deposit can be made up of either cash, a part exchange or a combination of both.

With Hire Purchase, it may also be possible to become the owner of the vehicle earlier than the agreed term by requesting a settlement figure and making a lump sum payment for the remainder of the loan.

What are the benefits of Hire Purchase?

Hire Purchase agreements allow you to spread the cost of the vehicle over a number of years rather than having to find all the cash up front. The risk for a lender in offering Hire Purchase is mitigated to some extent by the fact that they can repossess the vehicle if you can no longer make your monthly repayments. Because the loan is secured against the vehicle people with poor credit scores have a better chance of being accepted than an unsecured personal loan for example.  Finance is subject to status.

Unlike with PCP deals, Hire Purchase does not require a large final payment (or balloon) to be made to become owner of the vehicle and Hire Purchase agreements do not tend to impose annual mileage restrictions in the way that PCP or Leasing deals do.

What else do I need to consider?

Finance is subject to status.  Failure to keep up with monthly repayments may lead to the vehicle (or equipment) being repossessed, as it is used by the finance provider to secure the loan. That may affect your credit score and ability to obtain finance in the future.  You do not own the vehicle (or equipment) until the final instalment, plus any final title transfer fee or option to purchase fee, has been paid.