What is Hire Purchase car finance?
Hire Purchase is very straightforward and the traditional way to finance the purchase of your new car. We take the price of the car, deduct any deposit you are paying – which could be from a part exchange, then add interest based on the number of years you are spreading the cost (anything from 1-5 years). The remaining figure is divided by the number of months you are paying it back over.
An example of Hire Purchase
As an example, you want to buy a costing £5000 and you can pay a deposit of £500. This leaves £4500 left to pay. If you decide you can pay over 3 years, lets imagine the interest on the amount you are effectively borrowing is £400. So the total you are paying back is £4900. Divide by the number of months, in this case 36 because it’s over 3 years, and you have a monthly payment that is the same each month of £136.11. Simple.
The thing to remember is, until you pay off the finance, the car doesn’t belong to you. So you can’t modify it without their permission. Once you have made the last payment, the car is yours to keep.
Hire purchase is great if you want a fixed monthly payment until you pay off the finance. Monthly payments will be higher than a lease purchase or a PCP, but you won’t have a larger final payment at the end either. It’s also good to know the finance is secured against the car, not your home.
Advantages of Hire Purchase
Fixed monthly repayments
No final large payment
Up to 5 years – that’s 60 months to pay back
The loan is secured on the car, not your home
If you repay early you can save some of the interest charges
You own the car at the end.