Hire Purchase is an agreement where you are technically ‘loaned’ the finance for a vehicle, and then pay it back through monthly instalments. The finance company holds the title to the vehicle until all the payments have been made.
It’s very flexible – deposits and the length of the agreement can all be set to meet your budget.
With Hire Purchase, a deposit is optional and can be paid in cash or through trading-in an existing vehicle. The more that is put down, the less the amount borrowed, interest and ultimately monthly payments. There are no mileage restrictions with this type of finance – so it works well if you are covering lots of ground for your business. However, there may be some restrictions in terms of location and use.
The agreement will also outline an Option to Purchase fee, which needs to be paid at the end of the agreement for the title to be transferred and you to become the owner. If you do not wish to pay this, then the finance company retains the title to the vehicle. If you want to end the agreement early, you may pay the remaining balance in full and take ownership of the vehicle, then it’s yours to do with as you wish.
This makes Hire Purchase a great option if you want to purchase the vehicle, but don’t have the capital available at the time. Whilst the monthly payments are often higher, you are effectively purchasing the vehicle as opposed to hiring or leasing it.
Benefits
- You’ll be able to drive away a vehicle that you may not have managed to buy outright.
- Unlike a PCP or PCH contract, you won’t need to estimate your mileage at the start of your Hire Purchase agreement, so you’ll avoid excess mileage charges
- Once you’ve made your final monthly payment, including the option to purchase fee, you’ll have full ownership of the vehicle.
Things To Bear In Mind
- Monthly payments may be higher than some other finance options, such as PCP, as you’re paying off the full value of the vehicle.
- You won’t be able to sell the vehicle without settling the finance.
- You won’t own the vehicle until you have made all of your repayments.
- You’ll need to keep the vehicle properly insured, maintained and in your possession until the full value is paid off.
