Key Product
Hire Purchase
A type of car finance that allows you to pay for a car in monthly instalments over a fixed period of time
- At the end of the contract, you have the option to buy the car outright by paying a final balloon payment, or return it to the lender
- HP is suitable for people who want to own the car eventually and have a stable income to afford the regular payments
Some of the benefits and risks of HP are:
Some of the benefits of Hire Purchase are:
- You can spread the cost of buying a car over a longer period of time, making it more affordable
- You have the certainty of knowing the interest rate and monthly payments upfront, so you can budget accordingly
- You have the flexibility to choose the deposit amount, contract length, and monthly payment, depending on your personal circumstances and preferences
- You can benefit from any equity in the car if it is sold
- You can avoid the depreciation risk of owning a new car, as you can return it to the lender if its value drops significantly
- You have the protection of the Consumer Credit Act, which means you can terminate the contract early or claim compensation if the car is faulty or misrepresented
Some of the risks of Hire Purchase are:
- You do not own the car until you make the final payment
- You have to pay interest on the entire amount of the car, which can make HP more expensive than other forms of car finance
- You have to keep up with the monthly payments, otherwise the lender can repossess the car
- You may have negative equity in the car if its value is lower than the amount owed, which means you will lose money if you decide to sell it or trade it in
- You may have difficulty selling or transferring the car to someone else, as you need the lender's permission and the buyer's acceptance of the outstanding debt
