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Can You Explain What Hire Purchase Is?

Please can you explain how hire purchase works for me? I'm struggling to understand the difference between hire purchase, leasing & contract hire.

An explanation would help me decide which route to take. I think it's HP i need but not 100%.

Asked by Russell Armitage

Hi Russell, a great question and thanks for using the Q&A.

Hire Purchase or "HP" as it's known within the trade is simply a legal contract/agreement where an individual agrees to pay for their goods (in this case a car) over an agreed period of time.

Hire purchase was founded in the UK and is now found in many countries worldwide. Hire Purchase is a great option for people with (or without) a deposit but not the full amount for the goods in question. In effect "HP" allows people to hire a car for a period of 12 to 60 months and when all agreed monthly payments have been made you then own the car legally as the contract has been terminated/settled.

To clarify, the finance company is the legal owner of the car until all payments have been made. When the hire purchase agreement is signed initially an interest rate will be set in place for the term of the agreement and an installment plan/payment put in place. It is imperative that you keep up to date with your monthly payments otherwise it may affect your credit record and in the worst cases the finance company can repossess the vehicle.

Contract Hire & Car Leasing on the other hand is mainly used by businesses but can be used by individuals. Leasing is incredibly simple - you can lease a brand new car (without any initial cash outlay) for a period of 2, 3 or 4 years and at the end of the agreement you just hand your car back to the leasing company for them to dispose of the vehicle. With new cars leasing can be a better option to keep the monthly repayments down but HP has a great deal of benefits too.

I hope this helps clear your question up a little and if you're interested please make an application and once approved you can choose a car from any dealer and we also provide a no obligation quote. Kind Regards, Rachel

Tim Carpenter
Answered by Tim Carpenter Car Finance Expert Edited on

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