Under a HP (hire purchase) agreement you usually (but not always) pay a
deposit at the outset at the start of the agreement. You then pay the rest
of the value of the car in instalments, over a period of between 3 and 5
years. You hire the vehicle until you make your final payment, after which
you own it.
HP agreements are usually for a fixed monthly cost, meaning that the APR
(Annual Percentage Rate) is set before the contract begins. The finance
agreement is secured against the vehicle and this provides the lender with
some flexibility regarding the terms they can offer.
The amount you wish to borrow is based on the value of the vehicle you
want, minus any deposit you are able to provide. A deposit can be in the
form of cash or a part exchange vehicle.
At the end of the agreement
Once all of the monthly payments have been made, you then have the choice
whether or not to pay the final ‘option to purchase fee’. Paying this fee
means that you become owner of the vehicle.
You also have options to settle the finance agreement part way through the
term of the agreement, your finance provider can give you specific details
at any time.
Benefits of hire purchase
- A simple way to finance a vehicle purchase
- Flexible deposit options at the start
- A choice of agreement length based on your own financial circumstances
- Fixed monthly repayments
Things to consider
- The finance company own the vehicle until you pay the ‘option to purchase’ fee at the end of the agreement - this means that you can’t modify or sell the vehicle during the lifetime of the agreement