Is Hire Purchase car finance worth it? 

By: | January 21st, 2025

Photo by Viktor Bystrov on Unsplash

Hire purchase is one of the most popular ways to finance a car. It is a favored car finance deal because it is straightforward to understand and can be accessible to many diverse types of drivers. If you are looking to get a car on finance, read the guide below on all things hire purchase and decide if it is right for you. 

How does Hire Purchase work?

Hire Purchase is easy to understand, and its structure makes finance a doddle. The first thing you should know is that hire purchase car finance is a secured loan. This means the lender buys the car you want from a dealership for you, and they own the car during your agreement. They can use the car as collateral if you fail to make your repayments and even take the car away. Your loan will be calculated by the value of your chosen car plus any interest and fees and then split into equal monthly payments over the term. HP deals are usually divided over three to five years, but you can adjust the term to suit your budget. A longer loan term will make your monthly payments smaller but can increase how long you’re paying interest, and it may not be as cost-effective overall. At the end of the loan, once all payments have been made, you can keep the car. 

What are the benefits of Hire Purchase? 

There are many reasons why drivers are attracted to HP car finance deals. 

  • Fixed monthly payments and fixed interest rates so you always pay the same. 
  • Choose how much deposit you pay and there are many 0% deposit deals to take advantage of. 
  • It can make bad credit car finance possible because the lender can use the car as collateral if you fail to pay. 
  • Once all payments have been made and a low option to purchase fee, the car is yours to keep. 
  • There are no mileage limits and fewer restrictions than other finance deals.
  • Spread the cost into monthly installments which suit you. 

What should you consider before taking out a hire purchase loan? 

It would not be fair to only look at the benefits of hire purchase without considering the disadvantages too. 

  • The total cost of the loan can be higher than other options as you will need to pay interest and additional fees.
  • You will not be able to own the car until all payments have been made and the final purchase fee.
  • If your finances change, you are still committed to meeting the repayments. 
  • Monthly payments can be higher than other options. 
  • If you have a lower credit score, you could face higher interest rates. 
  • It can be an expensive way to get a brand-new car and works best on smaller loans like used cars. 

Who can get approved for hire purchase? 

Just like any other car finance deal, it can be hard for lenders to ensure someone will get approved. Car finance is not guaranteed because lenders need to assess if someone will pay back their loan on time. They do this by asking about a person’s income and affordability and requesting proof through payslips or bank statements. Lenders do this to protect themselves and the customers and ensure they get an affordable car finance deal. They will also usually perform a credit check to see how likely they are to pay back their loan, based on their previous history of borrowing. 

Hire purchase deals can be bad credit friendly because it is a form of secured loan. This means the lender can take the car off you if you cannot meet your repayments. However, it should not be taken lightly, you should always try to put yourself in a better credit position before applying for finance. Poor credit applicants can face higher interest rates to secure the loan so it could end up costing you more than it would if you had better credit. 

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