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What is hire purchase?

Hire purchase is a way to finance buying a new or used car. You (usually) pay a deposit and pay off the value of the car in monthly instalments, with the loan secured against the car.

This means you don’t own the vehicle until the last payment is made.

How hire purchase works

Remember

  • You need a good credit rating to get hire purchase deals at the lowest interest rates and always check the total amount repayable when comparing hire purchase with other finance methods

In most situations, you first need to put down a deposit on the car you want to buy. This is usually 10% of the vehicle’s value.

The rest of the value of the car will then be paid off in instalments over a period of 12 to 60 months (one to five years).

Hire purchase is arranged by the car dealer, but brokers also offer this service. The rates are often very competitive for new cars, but less so for used cars.

The loan is secured against the car, which is why you can’t own it until you’ve made your last payment.

Make sure you understand the terms and conditions of your loan before signing the contract.

Pros of hire purchase

  • Flexible repayment terms (from one to five years) to help fit in with your monthly budget – but the longer the term the more you’ll pay in interest.
  • Relatively low deposit required (normally 10% of the car’s price).
  • Fixed interest rates so you know exactly what you’re paying every month for the length of the term.
  • Once you’ve paid half the cost of the car, you might be able to return it and not have to make any more payments