What is Hire Purchase?
Kerrie Kerrie Dec 5 in Motor Tags: Car Buying Advice Car Finance Motor

What is Hire Purchase?

 

Hire purchase is an affordable and straightforward form of finance for new and used cars. We chat through the basics of hire purchase as a car finance option including whether it’s the right choice for you.

 

So, how does hire purchase work? Essentially, the car is purchased on your behalf from the car dealership by a financial institution, most often a bank. The dealership acts as an agent for the financial institution and earns commission by arranging the finance for you. The financial institution then rents the car to you for a fixed monthly cost over an agreed term of between one and five years.  It’s important to note that the loan is secured against the car which means you don’t own the car until the final repayment.

 

The total amount that you pay back is called the hire purchase price. This includes the cash price of the car, interest plus any fees incurred over the duration of the agreement. Fees can include;

  • In most cases, a deposit is required. This may be approximately 10% of the vehicle’s value.
  • There is a documentation fee of between €50 and €100 for setting up the agreement.
  • A penalty fee may be be charged for missed or late repayments.
  • To end the agreement, there is a completion fee of approximately €60 to pass ownership of the car to you.
  • If the financial institution repossess your car, there is a fee of approximately €300.
  • There is a rescheduling charge of approximately €60 in the event that you want to change the terms of the agreement.

 

While hire purchase is a convenient form of car finance offered by many car dealerships, it’s important to understand the pros and cons to each form of finance and choose the car finance which best suits your needs.

 

Advantages of HP:

  1. Fixed interest rates help with monthly budgeting.
  2. Low initial deposit required.
  3. Available for both new and used cars.

 

Disadvantages of HP:

  1. You don’t own the car until you’ve made the final payment.
  2. It can be difficult to increase your monthly repayments or extend the term without incurring a fee.
  3. You can’t sell or modify the car over the contract term without the finance provider’s permission.

 

Still feeling a little confused as to which car finance option is best for you? Here’s our quick guide.

 

Choose Hire Purchase if…

  • You’re sure you’d like to keep the car at the end of the contract term.
  • Fixed monthly repayments are important for budgeting purposes.
  • You don’t want any restrictions on mileage, car care and servicing.

 

Choose PCP if…

  • Low monthly repayments are important.
  • You have concerns about the car depreciating in value.
  • You’re not sure what you would like to do with the car at the end of the agreement.

 

You can learn more about PCP in our “What is PCP?” article.

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