Hire Purchase (HP)
Hire Purchase is a means of borrowing money in order to purchase an Asset, such as a motor vehicle.
Hire Purchase is probably the most popular means of car finance in the UK, and as the name suggests it consists of both elements of a lease and a loan.
When purchasing a vehicle most people decide how much they wish to borrow in order to purchase their new car and what monthly payments they wish to pay, the balance of the Loan is then paid off over an agreed period of time in regular monthly instalments.
During the time you are making repayments you are in effect, “hiring” the car, until the final payment is made. Once the final payment is made the vehicle belongs to you, hence the “purchase” side of the agreement.
Under the terms of a Hire Purchase agreement the vehicle is wholly owned by the Finance Company until the final payment is made, therefore you cannot sell the vehicle privately unless the final payment has been made or the total amount of the loan paid off in full, the agreement can be settled in full at anytime before the end of the agreement term, leaving you free to part exchange or sell the vehicle.
It is often easier to obtain finance with a Hire Purchase deal as the lender has the security of the vehicle, for this reason:
- More often than not Hire Purchase interest rates are more attractive than other forms of loans.
- Hire Purchase rates are fixed for the term of the agreement, therefore making it easy to budget for the monthly payment.
- Those who may have struggled to obtain finance for other forms of loan, are more likely to be accepted for Hire Purchase.