Is Car Finance The Same As Hire Purchase?
When it comes to car finance, a bunch of confusing terms get thrown around, one of them being Hire Purchase (HP).
Here, we’ll explore what hire purchase is, how it works, and how it compares to other car finance options.
What is Hire Purchase Car Finance?
Hire Purchase (HP) is a type of car finance that helps you to purchase a vehicle.
When you apply for car finance like HPand the lender approves your application, you will enter into an agreement with them.
This agreement allows you to buy a car you want, without having to pay the full amount right away.
The cost of the car is spread over a few years. You’ll be giving the car financing company fixed monthly payments, for the length of the HP agreement.
During this time, the lender technically owns the car you’re driving up until you’ve finished paying back what you owe them.
After you’ve settled the last payment to the lender, you will have legal ownership of the vehicle, making hire purchase simple and convenient.
Benefits of Hire Purchase
Getting hire purchase car finance comes with plenty of benefits. For example, you can buy a car you like, and drive it home, without having to pay the full price upfront.
Here’s some more benefits you can expect from a hire purchase agreement:
Affordable Deposit
The deposit you need to pay to purchase the vehicle through HP car financing is also relatively low, you can also get zero-deposit .
You can, of course, make a bigger deposit if you want to. This would bring your monthly repayments down and reduce the amount of interest you need to pay.
Budget-friendly Monthly Payments
The car finance term could last between one to five years. You can choose the length of the term according to your financial situation.
If you pay within one year, the monthly repayment will be higher than if you have a term of five years.
However, keep in mind that the longer the car finance term, the more you’re going to pay for the interest overall.
Predictable Repayment Amount
As for the interest rates, they’re fixed. So, you’ll know exactly how much you’re going to need to set aside to pay the lender.
HP agreements usually don’t come with mileage limits either. This means you won’t need to worry about paying any penalties for excesses in mileage.
How Does Hire Purchase Work?
Hire Purchase is simple to understand and you can use it for both new and second-hand cars. You usually have to pay a deposit on the vehicle that you plan to buy, though no-deposit deals may also be available.
Once the deposit has been made, you will pay off the rest of the car in monthly amounts for the duration of the agreement.
A typical hire purchase agreement lasts from three to five years. Once the payments have been completed, ownership of the car will transfer to you.
If you want to check out how much it will cost every month, you can use our online car finance calculator.
PCP or Hire Purchase?
Choosing between the different finance options can be daunting. Each one, be it PCP car finance or Hire Purchase, has its own pros and cons.
If you want to own the car outright at the end of the agreement, hire purchase is the simplest and most convenient option.
It will cost slightly more than PCP in monthly repayments, but you won’t need to pay a balloon payment at the end of the term.
If you decide to go for hire purchase finance, consider applying with Carmoola.
Carmoola streamlines the entire process, letting you apply, receive, and spend your funds fully online.
Securing hire purchase car finance with us is simple. Download the app, get your driver’s license ready, and fill in just a few short details.
Within 60 seconds you’ll know whether you’ve been accepted.
It’s car finance – but without the hassle!👍
Learn more about Hire Purchase finance:
- What is Hire Purchase Car Finance?
- What Does a Hire Purchase Contract Contain?
- Hire Purchase or Personal Contract Purchase?
FAQs About Hire Purchase and Car Finance:
What is Car Finance and How Does it Differ from Hire Purchase?
Car finance is a broad term that includes various finance solutions. It helps drivers purchase a vehicle without paying the full price upfront.
Hire Purchase is a specific type of car finance. You make fixed monthly payments for a set period of time and become the legal owner of the car once all payments are made.
Can You Explain the Process of Car Finance?
The process of getting car finance will depend on the lender you choose. Traditionally, you need to either call the lender and fill in a bunch of paperwork. However, if you apply with Carmoola, the entire process will be done online via our app.
If approved, you'll receive a virtual card that you can spend at any approved dealership.
What are the Advantages and Disadvantages of Hire Purchase?
Hire Purchase has the advantage of fixed monthly payments, making budgeting easier. It also guarantees car ownership at the end of the term. However, a potential disadvantage is that you don't legally own the car until the last payment. This may limit your ability to make modifications or sell the vehicle.
Which Option Offers More Flexibility: Car Finance or Hire Purchase?
While car finance includes various options, some of which can be flexible, Hire Purchase has a straightforward approach with fixed terms. The flexibility largely depends on the specific car finance method you're comparing to Hire Purchase.
Are There Any Additional Costs Involved in Either Option?
Both car finance and Hire Purchase might have additional costs like interest rates, potential setup fees, or charges for early settlement. Read the terms carefully and understand any potential extra charges before committing to any agreement.
