Hire Purchase Agreements
Do you want to buy a car, but can't afford to pay the full cost in one go? Hire purchase agreements are a way to get around this - they allows you to pay for your car in monthly instalments. There are many benefits to getting a hire purchase agreement over other forms of car finance, and once you've paid off the loan you will own your car outright. This guide will tell you how hire purchase works, and help you decide whether one would be right for you.
In this guide:
What is a hire purchase?
Hire purchase agreements are one of the oldest ways of financing a car and are still common today. It can be used to buy both new and used cars. It lets you spread the full cost of your vehicle over a certain length of time, but still allows you to own the car outright once the loan is repaid with interest. A hire purchase agreement lets you own your dream car even when you feel it's out of your price range.
How does hire purchasing work?
To get a hire purchase deal, you will usually have to pay a deposit. This will typically be around 10% of the total value of the car but can often be more. You will then pay off the remainder of the value of the vehicle in monthly instalments over a fixed period. This can be anything between one and five years.
You will also pay an annual percentage rate on top of your monthly instalments. This will typically be between 4-8% for used cars but can often be lower for new vehicles. Normally, you'll be offered a lower APR if you have a good credit rating, or if you can stump up more for a larger deposit.
Once you've paid off your loan in full with interest, you will be able to own the car outright. You will often be charged a small nominal fee at the end of your contract to take ownership from your dealer or broker. This is usually between £100-£200.
If you fail to keep up with your monthly payments your car could be repossessed by whoever gave you the loan, whether that's a finance company or a car dealership.
Is a hire purchase agreement the right option for me?A hire purchase deal is not the only option available if you want to spread the cost of your vehicle over a length of time. You could also get a car loan or a personal contract purchase agreement. The type of deal that could work for you will depend on the type of car you want, your budget, and your credit rating. Have a read through the pros and cons of getting a hire purchase agreement so you can work out if this type of deal is right for you.
- Allows you to spread the cost of your vehicle, so you can get a better car that you wouldn't be able to by paying upfront.
- Deposit payments are relatively low - typically around 10% of the total value of the car.
- Repayment terms are usually quite flexible - between one and five years - to allow you to pay what you can afford and not risk falling behind with payments.
- The interest rate, or APR, is fixed so you know exactly how much you need to pay back each month.
- Allows you to have full ownership of the car once the term is over and all payments have been made.
- Unlike a personal contract purchase, you don't need to pay a huge sum at the end of your contract in order to own the car and there are also no mileage restrictions.
- You could be able to return the car and stop the payments if you've paid back over a certain amount, usually around half the cost of the vehicle.
- Because the loan is secured against your car, if you have a bad credit rating then you will find it easier to get a hire purchase agreement than a personal car loan.
- You are essentially hiring the car until you pay back the loan, so if you miss any repayments then your creditors could repossess
- your car.
- The size of your monthly repayments will be higher if you have a small deposit or short term.
- If you decide to spread payments over a longer term, then the total amount you pay back in interest will be higher.
- Monthly payments are generally larger than with a personal contract purchase, and the rates you pay are usually higher than on personal car loans.
- You will need permission from the car finance company or dealership if you want to sell or modify your car during the term of the contract.
- Hire purchase can be expensive if you're looking for a short-term deal.
Where can I get hire purchase deals?
You can either get a hire purchase deal through the dealership that you're buying the car from - whether that's an independent dealer or a franchise - or through an independent online broker. It's always worth comparing any quotes you get from a dealership with what you can get online. You can then use any quotes you find online to haggle with a dealership in order to get a better deal.
If you use an online broker for your hire purchase, then you can still buy your car from any dealership you want - the loan will just be used to finance the car. When you apply for a hire purchase agreement with Money Expert, you'll get access to our panel of expert brokers who will help you get the best deal possible.
You can get a hire purchase agreement when buying a car from a franchised dealership. This is any dealership that is affiliated with a particular manufacturer, for example Ford, Toyota or BMW. You're more likely to find a brand new car in a franchised dealership than an independent one, although new cars lose their value very quickly. If you have a good credit rating, you could get deals from a franchised dealer such as 0% finance or a contribution towards your deposit which could be between £500-£2,000.
How do I get the best hire purchase deals?
The things you need to look out for when comparing hire purchase deals are the total cost of the loan, the APR, the length of the term and any additional fees and costs. Usually, the shorter your term, the higher your monthly repayments will be.
However, when you factor in your interest (APR), getting a hire purchase deal over a longer period could end up costing your more in the long run. You should always go for what you can afford but be aware that the more you spread the cost of your car, the more you could be paying in total.
Hire purchase agreements will vary hugely. What deal you can get will depend on your credit rating, as well as how much you're borrowing and where you're getting the deal from. Some of the best rates on offer are only available to those with near-perfect credit histories. However, that doesn't mean we all can't find a good deal by searching around. It's worth comparing hire purchase deals online before taking this information to a dealership to try and find a better deal there.
In a dealership, you can also haggle over the APR, deposits, additional fees and the price of the car. It's always worth getting quotes from a few different dealerships so you have a better idea of what's a good deal and what's not.