What Fees and Charges Are There for Hire Purchase?
For most of us, buying a car at full price with cash is just not possible. A big purchase like that would definitely dry up our bank accounts in no time. That’s why many of us choose a more budget-friendly way to buy a car, and that’s through Hire Purchase car financing. Since the cost of the car is spread over a series of instalments, it’s much easier on our finances. But apart from the monthly repayments, are there Hire Purchase fees and charges that we should be aware of? 🤔 Let’s find out!
Hire Purchase Car Finance Costs
The price of the car that you want to buy is only the starting point when it comes to the costs that you’ll have to be ready for. Of course, the vehicle price, also known as the manufacturer's suggested retail price (MSRP), is the figure in the ads from car dealers, and there’s usually that fine print that says, “starting at £10,000”, for example. So, for that £10,000 price, you need to prepare for other fees and charges, plus of course any changes to the spec you might like to add on. Here are some of the fees and costs to expect.
When you’re financing a car, you typically have to pay a deposit first at the start of your car finance agreement. The amount you’ll put down is flexible but try to aim for 10% of the price of the car or higher. Some car finance companies offer a no-deposit deal, but this is usually for borrowers with excellent credit scores. If you have an average credit score, then it’s wise to prepare for a substantial deposit to help get a better interest rate and make your monthly repayment amount more affordable.
The interest you have to pay depends on the rate that the lender offers you. This is the cost of borrowing money to buy the car, so on top of paying the loaned amount, you also have to pay interest. The general rule when it comes to interest rates is that the higher your credit score, the better your chances of being offered a lower rate. Also, if you take a short-term loan, or put in a bigger deposit, you won’t have to pay as much interest compared to having a longer repayment term.
Transfer of Ownership Fee
The good thing about buying a car on Hire Purchase as oppose to a Personal Contract Purchase is that once all the instalments are fully paid, the car is yours. But as the finance company had a legal charge on the car while you were completing the repayment they need to transfer that ownership to you. Fees for this may vary, but we can let you into a secret - Carmoola charges just £1!
Early Repayment Fees
If for some reason you need to pay off your hire purchase agreement early, you will find that there are usually some fees associated with this. You can check out more about early resettlement procedures here, but always best to check your original terms and conditions contract.
Other Cost When Buying a New Car
Taxes are another cost that you need to prepare for because there’s no getting around it, and it’s non-negotiable. However, there are some exemptions to this, like if the driver requires an adjustment to the car to cater for a disability, there will be no VAT to pay, or if you’re buying a fully electric vehicle since zero-emission cars have no tax (road tax) in their first year. But other than that, road tax is at £165 currently, whilst there’s also a discount of £10 for green cars like hybrids, mild hybrids, as well as plug-in hybrids.
Registration and Number Plate Fees
Car buyers have to pay fees that go towards registering and plating the vehicle. The registration and number plate fees are regulated by the government, so dealers don’t really have any control over them. It’s one of the charges that you, as a car buyer, cannot negotiate or opt-out of. It is simply an important process in buying a car. Unless of course you can negotiate that the dealer pays these as part of the deal.
Documentation or Administration Fees
Is there usually administration fees for car hire purchase? Yes, but the fees that car dealers will charge for processing documents and other paperwork will vary. Some buyers might be lucky to find one that won’t charge any fees at all as part of their promotion. However, other dealers could charge as high as £1,000. You may check information provided on government websites so you’ll have an idea of how much you’d expect for administration fees when buying a car.
Negotiate Further Purchase Fees
Just because the dealer shows you a list of fees and charges associated with hire purchase car finance, or simply buying your car, doesn’t mean you have to pay all of them. In fact, you can negotiate a lot of them or simply say you’d rather not have add-ons to your car purchase. Here are the fees you can negotiate with the car dealer.
This one’s also called “dealer add-ons”, and this includes a wide array of optional items and services that you can choose not to have. If you don’t look at the breakdown of your car purchase fees, it’s easy to overlook this charge. It might cost you a few pounds to thousands of pounds, so it’s worth checking if you’re being charged this fee.
Know that extended warranties are completely optional. If it’s not called this term, look for “service contract”. You’ll usually encounter this charge if you’re buying a secondhand car that is no longer covered by the manufacturer’s warranty.
This one’s a type of insurance cover that is also optional. When you get this cover, various parts of the car will be marked, and then they will be recorded in a traceable database. Usually, this insurance cover also includes identity theft protection. In case you feel you need this type of insurance cover, you may choose to pay for this charge. Otherwise, tell the dealer you’d like to opt out of this offer.
Interest Rate Markups
Did you know that car dealerships can pad the interest rate that the car finance company assigns to you? Of course, not every car dealer practices this, but you’ll never really know if they do. This is literally a hidden fee in buying a car on hire purchase. You can prepare for this by doing your research on what the average car finance interest is for your certain credit score bracket, so you’ll know if your rate seems a bit too much. You can even get quotes from different car finance companies, although beware against making multiple full applications as this will leave a mark on your credit score. But it's always wise to shop around.
The fees and charges you’ll get when you buy a car can differ from one car dealer to the nextand from one finance company to the next - remember you don't have to take finance with your car dealer these days as there are many car finance specialists out there. Whenever you’re shopping around for a car finance deal, be sure to use a car finance charge calculator, so you’ll have an estimate of how much you need to pay. Many car finance companies provide calculators on their websites, so go ahead and make use of them when preparing your car budget! If you need any further advice do get in touch with us or check out our many blogs on buying a car. 🚘