We take the price of the car, deduct any deposit you’re paying (which could be from a part exchange), then add interest based on the number of years you’re spreading the cost (anything from 1-5 years). The remaining figure is divided by the term of the agreement.
Here's an example:
Let's say you want to buy a car 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, let’s say the interest on the amount you’re borrowing is £400, so the total you’re paying back is £4900. Divide by the number of months, in this case 36, and you have a fixed monthly payment of £136.11. Nice and simple.
Once you’ve made the last payment, the car is yours to keep
Until you pay off the finance, the car doesn't belong to you. Once you’ve made the last payment, the car is yours to keep.
Hire Purchase is great if you want a fixed monthly payment and want to own the car at the end. Monthly payments will be higher than a Lease Purchase or PCP agreement, but you won’t have a larger final payment either.
Advantages of hire purchase
- Fixed monthly repayments
- No final large payment
- Up to 5 years 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
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