Hire Purchase explained
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Hire Purchase explained
First of all lets talk about what is HP. HP stands for Hire Purchase, and with this finance agreement you pay a relatively low deposit, maybe about 10% of the cars value and you’re ‘hiring’ the car until you pay the monthly payments off and own the car come the end of the agreement.
Here’s how hire purchase works:
First of all you put down a deposit on the car you have chosen to buy, for most hire purchase agreements this will usually be around 10% or more of the value of your chosen vehicle.
The rest of the value of your chosen vehicle when then be paid off in monthly instalments over your chosen period – anything from 12 months to 60 months.
Hire purchase can be arranged by us here at Essex Car Company or you can use an external finance broker. It is important to remember that with finance you will be charged an annual interest rate percentage, which on a used car will you usually vary from 4-8%. The rate rises usually with lower credit scores, it’s important if you are financing a car that you keep up with the monthly payments to keep a good credit score.
Once the monthly payment end, you will have an ‘Option to Purchase’ fee. As your loan is secured against your car, you won’t own the car until you pay the ‘Option to Purchase’ fee which on a hire purchase agreement is considerably cheaper than on personal contract purchase. On a hire purchase agreement the fee will usually only be a couple of hundred pounds.
If you want to buy your car on hire purchase then keep reading, we will talk about what the pro’s and con’s of taking a hire purchase agreement could be.
Pro’s
Your repayment terms can range from one to five years and are extremely flexible meaning they can suit your lifestyle and monthly budget – remember the longer the term on your agreement the more interest you pay. It’s also a relatively low deposit from 10% of the cars price. Also with a hire purchase there is the possibility of making it halfway through the finance term you might be able to return the vehicle and make no more payments on it. A hire purchase can be easier to secure than a loan for the car, especially if your credit score is poor.
Con’s
You don’t actually own the car until you have made your final payment and paid the ‘Option to Purchase’ fee, meaning come the end of the agreement this could put you in some financial difficulty. Your car is not owned by you therefore in order to sell it or make modification you have to get permission from your finance company. The monthly payments on a hire purchase deal are usually considerably higher than the monthly payments you see on a personal contract purchase financial deal. Finally, until you have paid a third of your total amount payable, the lender can repossess the car without a court order.
If you want used car finance in Essex or are looking for a used car in Essex then look no further than Essex Car Company who are more than happy to help, just speak to one of the team today.