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What Is Hire Purchase?
Hire Purchase (HP) is a way of financing a car over a fixed period on a basis similar
to a bank loan. Unlike a bank loan though, ownership of the car remains with the finance
company until the final payment is made on the hire purchase agreement.
In a typical hire purchase arrangement you are literally hiring the car for a period
of time and only become the owner once all the payments are made and the agreement
You make monthly repayments that cover all of the cost of the car, plus interest charges.
The final payment will also contain an amount which, once paid, transfers ownership
of the car to you.
Normally the supplier of your car will arrange the HP agreement for you. Usually a
deposit will be required (typically 10% of the purchase price). The finance company
then lends you the rest of the purchase price but in a different way to a bank loan.
The finance company:
• buys the car from the supplier;
• hires the car to you for an agreed period in return for monthly payments; and
• transfers ownership of the car to you at the end of the hire period once you have
made the final payment.
At the end of the agreement the car is yours to keep or sell as you please.
Because in your monthly repayments you have repaid the whole of the amount originally
borrowed you will have kept the interest charges to minimum by comparison with a Personal
Contract Purchase agreement (leaving aside the rate of interest charged).
Because the finance repayments cover repayment of the full purchase price, rather
than just depreciation, the monthly repayments are typically more than those of Personal
If you fail to complete the agreement then the car remains the property of the finance
company and can be repossessed by the finance company (subject to certain requirements).