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Hire purchase is a form of car finance that is popular with many consumers. In the UK, hire purchase is one of the most trusted car finance agreements. It allows you to spread the cost of a car into monthly payments and pay it off over several years. There are a number of car finance agreements available in the UK but hire purchase could be the one that’s right for you! Let’s take a look at the benefits of getting a car on hire purchase and why is it so popular?
What is a hire purchase?
Hire purchases can be used to finance a new or used car. You usually pay a deposit, around 10% of the value of your chosen vehicle and then make monthly payments to an agreed term with added interest. Hire purchase agreements are usually paid off between 1-5 years. It is a secured loan which means that the loan is against the vehicle, and you won’t own the vehicle until the last payments have been made. Hire purchase spreads the cost of the vehicle you choose, unlike some agreements such as Personal Contract Purchase which only covers part of the vehicle. Hire Purchase is better than the Salary Sacrifice Car Scheme.
Benefits of hire purchase
1. Spread the cost
One of the biggest benefits of getting a car on hire purchase is how affordable it is. Usually, you can get a car that is worth more than you first thought as you can choose to spread the cost. Your repayments are fixed which means they won’t change during the agreement. You can get a hire purchase without a deposit but having a deposit to put down can increase your chances of getting approved and lower your monthly payments. You can choose a longer or shorter finance term, which can affect your monthly payments. Choosing a shorter term will increase your monthly payments but it can reduce the amount of interest and rebuild your finances.
2. Own the car at the end
During the agreement, the finance lender will own the car. Once the final payment has been made, the ownership of the vehicle will be transferred to you from the finance company. The car will then be yours and the car finance agreement has ended. If you are looking to get another car on finance, you can then use the value of your car as a part exchange. You should note that during the agreement, the lender has the right to take the car off you if you fail to make your repayments on time and in full.
3. Bad credit considered
Your credit score can determine your chances of getting approved for car finance. Hire purchase agreements can also be offered to those with low credit scores. Car finance bad credit instant decision is possible but there are a number of ways you can help to get accepted if you have bad credit. You could consider increasing your credit score before you start applying as this can help you get a better rate offered. Alternatively, you can save up for a deposit or make an application with a partner.
4. Less restrictive than other options
When you lease a car or get a car with a PCP agreement, there are usually mileage and conditional restrictions. For example, PCP cars are usually handed back to the lender, so they need to be in good condition and meet the mileage limit which is set at the beginning of the agreement. If not, you can face additional charges. With hire purchase, there are no mileage or conditional charges. However, you won’t be able to make any modifications to the car till you own the car at the end of the agreement.
5. Apply with a partner
If you are struggling to get approved for finance, you could consider making a joint car finance application. There are many benefits of having a partner to finance a car. This is when two people apply for finance on the same car. Usually, a couple or two family members would both own the car and are responsible for meeting the repayment deadlines. This gives lenders more confidence that the loan will be paid as two parties are responsible and can increase your chances of getting approved. It can be a more popular option than getting a car loan with a guarantor.