A wise guide to…

Hire Purchase Agreements

If you need a vehicle and don’t have the cash to pay for it right away then a car on hire purchase could be an option for you. In this guide we will break down the details of a hire purchase agreement so you can decide on the best deal for you. To compare car finance and loan options complete a Choose Wisely loan search.

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Representative 49.7% APR. Representative Example: Borrowing £1,200 at an interest rate of 0.34% per day for up to 75 days (124% per annum, variable) and a Representative rate of 49.7% APR (variable).
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Table of contents

Written by Mark Grimley
Read time: ~5 mins
Published: 10th November 2020 Updated: 26th November 2020

What is hire purchase?

A hire purchase is a way of buying a new or used car if you don’t have the funds to pay for it upfront. Instead, you will pay a deposit on the vehicle and then make up the value of the car in a series of monthly installments. The loan will be secured against the car so you won’t own it outright until you make your last payment.

While you are paying off the finance agreement the lender still owns the car. You will have the option to purchase it once all of the monthly repayments have been made. It’s important to remember there will be an ‘option to purchase fee’ with this too which is typically around £100. Once this is paid then the ownership is transferred to you and you own the vehicle outright. Until you own it you cannot sell the car or make any sort of modifications.

How does getting a car on hire purchase work?

Initially you will need to pay a deposit which is usually around 10% of the total cost of the car. Then your monthly payments will be set up to pay the remaining balance over the next 12 to 60 months. There will also be a final ‘option to purchase fee’ which will need to be considered. Hire purchase agreements are normally arranged by a dealer but there are brokers that will also offer the service.

Your monthly repayment rate will depend on your credit score and the value of the car. If you have bad credit then the rate could be higher. Always compare the total amount that has to be repaid when considering a hire purchase agreement. Remember that if you don’t keep up with the monthly repayments the lender can come and seize the car.

How do I get the best hire purchase deal?

You can find the best deals by going to a dealer or online broker. Using an online broker will give you a wider range of options and the rates will be more competitive. When considering hire purchase always look at the overall cost of the car and not just the monthly repayments. Never rush into a hire purchase deal and use comparison sites like Choose Wisely to compare other car finance options.

What to consider when comparing hire purchase deals

There are a few things you will need to think about when you are considering a hire purchase deal. You need to think about:

  1. How much interest you will be paying on the loan

  2. The total amount that is repayable on the vehicle

  3. The total cost of the credit

  4. Any additional fees

Pros and Cons of hire purchase agreements

  • The monthly repayments are flexible so can fit in with your monthly budget.
  • The deposit required is usually relatively low - around 10%.
  • The interest rates are fixed so you will know exactly what you need to pay back.
  • It can be easier to get a hire purchase deal rather than a loan if you have bad credit.
  • Typically with these deals there are no mileage restrictions involved.
  • Unlike a PCP you won’t need to find a large lump sum of money to buy the car at the end of the agreement.
  • You can spread out the cost of a hire purchase agreement so you may be able to get a better vehicle than if you had to pay for it all upfront.
  • You don’t own the car outright until you make the last repayment.
  • You can’t sell the car or modify it in any way.
  • Monthly repayments tend to be higher than a PCP or leasing the vehicle.
  • The amount you put down as a deposit and the length of the loan will impact how much your monthly installments are.
  • Until you’ve paid off a third of the total amount you owe, the lender has the right to repossess the car without needing a court order.
  • This type of deal can be expensive if you want a short term agreement.

With any sort of car finance there isn’t a one-size-fits-all option. It will all depend on who you are buying the car from, how much you need to borrow and how good your credit score is. So if you are looking to buy a car take the time to consider all your options.

Hire purchase FAQs

Can I get a car on hire purchase with bad credit?

Hire purchase can be an option for you if you have bad credit. The loan is secured against the car itself so this could make it easier to get accepted for a loan. If you have more to put down as a deposit this will also make the loan and the risk to the lender smaller. If you have bad credit it is even more important to make sure you compare all of your options before agreeing to anything.

Hire purchase the same as a conditional sale?

A conditional sale is very similar to a hire purchase but with a conditional sale you own the car at the end of the agreement.

What happens if I can’t afford my repayments?

The loan is secured against the car so if you stop making repayments then it is likely the dealer will take the car off you. If you haven’t paid more than a third of the car repayments then they won’t need a court order to come and repossess the vehicle.

Written by
Mark Grimley
Head of Partnerships & Take Control Author at Choose Wisely

Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.

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Important Information.

All of the information in this guide is correct at the time of writing.

Rates shown are quotes based on your personal circumstances, are subject to status and are available to those aged 18 and over. Rates available range from a minimum of 3.9%APR to a maximum of 1575%APR Representative and loan repayment periods range from 3 to 60 months.

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