Hire purchase is a way of spreading out the cost of a car in fixed monthly instalments. Because this method results in you owning the car, the monthly repayments are ultimately higher than other finance options, like PCP, as the entire cost of the car has to be paid off.
Hire purchase is usually cheaper than an unsecured personal loan. This is because until your final payment, the ownership of the car is retained by the finance company, Smile Vehicle Finance for example, and if your monthly payments aren’t met then the vehicle could be repossessed and the contract cancelled. Hire purchase is also a simple process to set up, as you will be keeping the car, so a guaranteed minimum future value doesn’t have to be decided and a mileage limit isn’t imposed. No mileage cap also means less restrictions.
Another benefit of hire purchase is that maintenance and servicing is often included as part of the package. This is an obvious benefit as repairs can be very expensive. The resale price of the car is also increased with regular servicing.
Like personal contract purchase, hire purchase contracts allow people to buy more expensive cars than they would if they bought it outright. These cars may be more reliable or closer to what the buyer really wants. As well as this, the monthly payments will never increase, so you will be able to make a well-informed decision about whether or not you will be able to afford the repayments without any nasty surprises.
The downside to hire purchase, however, is that your credit score is paramount to securing a good rate. If you have a less than perfect credit rating it’s important to shop around as interest rates for low credit scores can make monthly payments increase dramatically. If you are worried about bad credit affecting your chances of being successful in a finance application, speak to Smile. Smile is an expert car finance provider who can help you secure a fair and affordable deal whatever your credit score.
Another disadvantage of hire purchase is the risk of repossession. If you are unable to keep up with the repayments, the car could be taken back and you could face further charges depending on how long you’ve the car for. However, this is a very unlikely to happen as long as you are confident that you can afford the monthly payments when you enter the agreement.