Hire purchase often referred to as HP allows you to pay for a car in regular monthly instalments and when buying a car using this finance method means the vehicle is yours once the final payment is made.
A hire purchase is the simplest type of car finance that you can take out. You pay a deposit, usually around 10%, and then you make fixed monthly payments over an agreed period of time.
With hire purchase, the car isn’t going to be yours until after you have made the final payment. What this means, though, is that if you do miss a payment, you could face losing the car as the loan was originally secured against the vehicle. Also, the hire purchase agreements are set up by the dealer, but you can go to a broker to have this arranged if you would prefer. Something else that you need to know is that this works best for new cars as the rates are typically better.
One of the best things about hire purchase is that you are paying a fixed amount monthly, so you know that the payments won’t increase or decrease. This gives you a level of security and allows you to budget it into your calculations without much hassle.
The bad side of a hire purchase, though, is that you don’t own the car until the end of the agreed period. As such, you’ve got to be careful that all payments are being made on time. You also cannot sell the car if you want to. The loan was taken out against the car, and therefore you are going to have to complete the payments before you own the car, and can then sell it on.