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How Long Can I Take a Hire Purchase Agreement Over?

For many drivers looking to finance a car, a common question is “how long can I take Hire Purchase over?” HP car finance repayment terms can be as short as 12 months or as long as 84 months or seven years for some lenders who offer long-term car Hire Purchase deals. However, another question to ask is whether a long-term Hire Purchase is a good idea. Let’s find out! 

How Hire Purchase Car Finance Works

Hire Purchase is a type of car finance product that allows you to drive your dream car without emptying your bank account. With just an initial deposit, you can start using the vehicle of your choice. After that, the next payments will be the monthly instalments you have to make for the duration of your car finance contract. When you’ve reached the end of your contract and you’ve made the last payment on the car, then you’ll be the legal owner of the vehicle. 

Is Hire Purchase Short or Long-term?

Your HP car finance repayment term can be as long or as short as you want but on average, most lenders offer three to five-year contracts. You get to determine the length of your car finance term when you apply for financing. 

The lender will then calculate your loan and how much you have to pay each month for the full duration of your car finance agreement. You’ll be able to see the breakdown of the monthly instalments on your contract, as well as the interest applied and other fees and charges. 

When is a Long-term Hire Purchase a Good Idea?

If you want to make the monthly instalment amount as low as possible, you may opt for a longer repayment term for your Hire Purchase car finance deal. However, while the amount is more affordable, you’ll be paying more interest in the long run. This is because you’re borrowing money from the lender for a longer period. In case you don’t mind paying a bigger interest overall, then a long-term Hire Purchase agreement might just suit your budget better. 

There are also such things like HP agreements with a final balloon payment - this keep the monthly costs down but you still have to pay a lump sum at the end of the contact - and this is not optional as with a PCP deal. 

Why It’s Better to Choose a Short-term HP Deal

Generally, it’s much better to opt for a Hire Purchase term that won’t go beyond four years. But the way that this works is that the shorter your repayment term, the higher your monthly instalments would be. 

The good thing about this though is that you’ll be finished with repaying the car finance company much quicker and the car will be yours sooner. This means you get to do what you want with the vehicle like modify or customise it. 

Another advantage of choosing a shorter HP deal is that you’ll pay less interest overall. So, if you look at the big picture, you get to save more money with a shorter repayment term. If you can afford to pay higher monthly instalments, then it’s a better idea to go for an HP deal that lasts for three years or less.

Why Consider Used Car Hire Purchase

What if you want to own the car faster without having to pay really high monthly instalments? You can consider buying a second-hand car! Think about it, used cars, even if they’re only a year old, are already much cheaper than their brand new counterparts. Remember, brand new vehicles begin to lose their value the moment they’re out of the dealership. With a used car, you don’t have to worry so much about this rapid depreciation. 

Today’s used car market is booming so expect to see a lot of second-hand vehicles that are as good as their brand new equivalent. You can even try looking for ex-demonstrator cars that have only been used in the showroom or for test driving. Those cars are essentially brand new because you’re the first owner!

With a second-hand car, the price of the vehicle will be much lower. You can choose to pay a substantial deposit to make the monthly instalments even more affordable. And since a used car is cheaper, you’ll be able to choose a shorter repayment term and get done with the payments fast. 

Calculate the Cost of Financing a Car

If you’re still in the process of preparing your finances for the car purchase, you might want to use a car finance calculator to make things easier. With this calculator, you’ll be able to know the estimated cost of financing a car with Hire Purchase. Simply enter the amount you intend to pay as your deposit and then select your preferred repayment term. You’ll get an estimate instantly.

Of course, the amount displayed on the car finance calculator might not be the actual figure because the computation is only based on the representative annual percentage rate. The actual APR that will be applied to your loan might be different, depending on your credit score, income, and financial situation. Nonetheless, it’s a good starting point when you’re budgeting your finances to prepare for your car finance application. 

Takeaway

Some car finance companies offer repayment terms up to five or even seven years long. On average, lenders provide car financing for three to five years. The repayment term can be as short as 12 months, depending on your capacity to pay higher monthly instalments. Choosing a longer car finance term is good if you prefer a more affordable monthly repayment amount and don’t mind paying more interest overall. 

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