Unlocking the potential of Hire Purchase
If you’re exploring finance option for your next vehicle purchase, you’ve likely come across the term ‘Hire Purchase’. But what exactly is it, and how does it work? In this comprehensive guide, we’ll dive into the ins and outs of Hire Purchase, shedding light on its benefits and potential pitfalls.
What is Hire Purchase?
At its core, Hire Purchase (HP) is the most common form of vehicle finance. It’s essentially a hire agreement between you (the customer) and a finance company, with the vehicle serving as collateral. The unique aspect of HP is that it provides you with the opportunity to own the vehicle at the end of the agreement, contingent on the payment of the ‘option to purchase’ fee.
How Does Hire Purchase Work?
The mechanics of a Hire Purchase agreement are straightforward. You commit to paying off the full value of the vehicle, along with interest, through fixed monthly instalments. The repayment period is typically agreed upon beforehand, usually spanning from 12 to 60 months (1 to 5 years). However in some cases, it can extend up to 84 months (7 years), allowing for flexible terms that align with your budget and preferences.
Once you’ve made all the repayments, you’ll have the opportunity to own the vehicle outright by paying the ‘option to purchase’ fee. This fee essentially covers the administrative costs of transferring ownership to you.
Security and repossession
It’s important to note that the debt in a Hire Purchase agreement is secured against the vehicle itself. This means that if you fail to make the agreed payments, the finance company has the right to repossess the car to help settle the outstanding debt.