If you’re considering buying a car in the UK, you may be wondering, “What is Hire Purchase?” A Hire Purchase Agreement is a commonly used method of financing a vehicle purchase, allowing buyers to spread the cost of ownership over a period of time.
With a Hire Purchase Agreement, you’ll typically make a deposit upfront and then make regular payments over a fixed term. At the end of the agreement, assuming all payments have been made, you’ll own the vehicle outright. In this article, we’ll explore the ins and outs of Hire Purchase Agreements and how they work in the UK.
What are Hire Purchase Agreements?
Hire Purchase Agreements are a common method of financing the purchase of a new or used car in the UK. With this type of agreement, the buyer typically pays a deposit upfront and then makes regular monthly instalments to cover the remaining cost of the car, plus interest.
The car is priced at the start of the agreement, and the buyer agrees to pay this amount over an agreed period of time. Once all the payments have been made, the buyer will own the car outright.
Hire Purchase Agreements can be a flexible and convenient way to finance a car purchase, particularly for those who may not have the funds to buy a car outright. However, it’s important to carefully consider the terms of the agreement and ensure you can comfortably afford the monthly payments.
How does Hire Purchase work?
If you’re considering a Hire Purchase Agreement to finance a car purchase, here’s how the process typically works:
1. Shop around for the best Hire Purchase deal
It’s important to do your research and compare the terms of different Hire Purchase Agreements to find the best deal for your needs.
2. Pay an initial deposit to your car dealer
Once you’ve found the car you want to buy and agreed on the price, you’ll need to pay an initial deposit to secure the vehicle.
3. Start making your monthly payments
After paying the deposit, you’ll begin making regular monthly payments for the agreed period of time. The payments will cover the cost of the car plus interest.
4. Make your final payment and decide whether to pay the purchase fee
Once all the payments have been made, you’ll own the car outright. At this point, you may have the option to pay a purchase fee to take legal ownership of the car. Unlike leasing deals, with a Hire Purchase Agreement, you are the legal owner of the car.
It’s important to keep in mind that with Hire Purchase Agreements, there may be additional fees to consider, such as excess mileage fees. Additionally, if you decide to sell the car before the end of the agreement, you’ll need to inform the finance company and get their permission to transfer ownership.
Overall, a Hire Purchase Agreement can be a convenient way to finance a car purchase, but it’s important to carefully consider the terms and ensure you can comfortably afford the monthly payments.
Hire Purchase Agreements vs Conditional Sale Agreement
Hire Purchase Agreements and Conditional Sale Agreements are two common methods of financing a car purchase in the UK, but they differ in a few key ways.
Legal ownership
With a Hire Purchase Agreement, you make regular payments over an agreed period of time and own the car outright once the final payment is made. The car is technically owned by the finance company until all payments are complete, but you have the option to purchase the car outright at the end of the agreement.
A Conditional Sale Agreement is similar, but with one major difference: you are the legal owner of the car from the outset. However, you don’t fully own the car until all payments have been made, and the finance company has the right to repossess the car if you miss payments.
Flexibility of the arrangement
In terms of flexibility, Hire Purchase Agreements tend to be more flexible than Conditional Sale Agreements, as you can end the agreement early and return the car if you can no longer afford the payments.
With a Conditional Sale Agreement, you may be required to pay off the full agreement amount if you wish to end the agreement early.
Ultimately, the best option for you will depend on your individual circumstances and preferences. It’s important to carefully consider the terms of each agreement and compare the pros and cons.
Can you get a car finance deal without a good credit score?
It can be challenging to secure a car finance deal without a good credit score, as many lenders will use your credit score to assess your creditworthiness and determine your interest rate.
However, there are some options available for those with poor credit, such as:
Secured car finance: This involves putting up collateral, such as your home or another asset, to secure the loan. This can make it easier to get approved for a loan with poor credit, but it’s important to carefully consider the risks involved.
Guarantor loans: With this type of loan, you’ll need a cosigner with a good credit score to guarantee the loan. This can help you secure a loan with poor credit, but it’s important to ensure you can afford the repayments and understand the risks involved.
Personal loan from specialist lender: While personal loans typically require a good credit score, there are some lenders who specialise in offering loans to those with poor credit. However, these loans may come with higher interest rates and fees.
It’s important to carefully consider the terms and costs of any car finance deal, particularly if you have poor credit. You should also consider improving your credit score before applying for a loan, as this can help you secure a better interest rate and save money over the long term.
Tips for getting the best car finance agreement
Often people researching Hire Purchase find it difficult to know whether they’re getting a good deal. If you’re looking to secure the best car finance agreement for your needs, below are a few tips to keep in mind.
Map out your monthly budget
Before you start shopping for a car, take the time to map out your monthly budget and determine how much you can realistically afford to spend on a car payment each month. This will help you narrow down your options and ensure you don’t overextend yourself financially.
Shop around for car dealers
Take the time to shop around and compare car dealerships to find the best deal for your needs. Don’t be afraid to negotiate on the price of the car or the terms of the finance agreement.
Work out the overall cost
When comparing car finance agreements, be sure to take into account the overall cost of the car, including any interest, fees, and charges. This will help you determine the total amount you’ll be paying over the life of the loan.
Consider using an online broker
Consider using an online car finance broker to compare deals from multiple lenders and find the best option for your needs. Be sure to carefully read the terms and conditions of any Hire Purchase Agreement before signing on the dotted line.
What happens If I can’t afford the Hire Purchase Agreement?
If you can’t afford the hire purchase agreement, your vehicle may be taken off you, as the vehicle belongs to the provider of the finance. The only way to keep it is by paying the monthly payments or by taking an alternative loan to pay the agreement off.
If this is not possible then you may need someone to go through the agreement with you to see what level of debt you will be left with if the vehicle is repossessed by the finance company.
If you own a caravan, you may also have site fees and other costs to be paid whilst the caravan is on the caravan site. You may need to speak to the owners of the site to see what their policy is when site fees are in difficulty.
If you contact a free debt advice charity they would be able to go through a budgeting exercise to look at your income, daily living costs and debts to see how much is affordable to pay towards debts. Please read our article on static caravan finance for more information.
Can I transfer ownership of Hire Purchase (HP) debt to someone else?
For anyone who ends up with a HP agreement they can’t afford, they may be thinking of transferring ownership of the debt accrued.
If you can not afford the agreement and end up in debt, the person who took out the finance contract would normally be liable for the debt. However, if the car was on a hire purchase agreement, the owner of the vehicle could terminate the agreement and return the car. This would make them liable for only 50% of the original amount.
Please note, repossession of the vehicle may be possible without taking court action. There are also times where the company may need to seek the court’s permission to repossess.
What happens to my agreement when I go bankrupt?
If the vehicle is on a hire purchase agreement there could be a clause in the terms that state that the hire purchase agreement is terminated if the purchaser becomes bankrupt.
This may mean that the vehicle is repossessed by the hire purchase company or they may be happy to leave the car with you and continue to receive payments from someone else.
If the car was purchased using a hire purchase agreement then it may be that the car is owned by the hire purchase provider.
This would mean that in bankruptcy the car may have no value to the bankruptcy at all and be of no interest to the Official Receiver when they are working out if you have anything that can be sold to raise money for the creditors.
