What is Hire Purchase?
In most situations, you first need to put down a deposit on the van or car you want to buy. This is usually the full vat on a van or 10% on a car or more of the vehicle’s value if you wish to or its specified by the lender.
The rest of the value of the van or 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 van or car dealer, but brokers also offer this service. The rates are often very competitive for new vehicles, but less so for used vehicles. For second hand vehicles the annual percentage rate can vary from 4% – 8%. The lower the number the better. The rate could be higher for example because you don’t have a good credit score.
The loan is secured against the vehicle, which is why you can’t own it until you’ve made your last payment, including paying the Option to Purchase fee.
Make sure you understand the terms and conditions of your loan before signing the contract. For example, once all repayments have been made you pay a final fee, known as the ‘Option to Purchase’, once you’ve paid this you’ll own the vehicle. This is typically £100-£200, but it does vary so ask how much it will be.