Hire Purchase
Hire Purchase
What is Hire Purchase?
Hire Purchase is a traditional method of leasing a vehicle, with the vehicle becoming the property of the customer at the end of the agreed term. Under a Hire Purchase agreement, you pay an initial deposit followed by monthly payments (a portion of the money you borrowed plus interest) over an agreed period of time. The monthly payments for Hire Purchase are determined by the following factors:
1. The amount of deposit paid
2. The length of the contract
3. The sale price of the vehicle
What are the benefits of Hire Purchase?
Hire purchase is an easier method of obtaining a loan than applying for an unsecured loan through a loan company - this is because the loan itself is secured against the car. Hire Purchase can be easily obtained by simply visiting your nearest dealership. Your monthly repayments will most likely be higher than with other finance options but the overall sum or repayment should be lower.
What are the disadvantages of Hire Purchase?
You won't own the vehicle until the final payment has been made, and the leasing company have the right to take back ownership of the car if you fail to meet your monthly payments. If you did want to sell your vehicle for any reason, you would still have to pay the loan back in full. Because you don.t legally own the vehicle until the end of the agreement, you cannot modify it in any way without the leasing company's permission. You are also liable for any damage caused to the vehicle during the agreed term.
Points to consider with Hire Purchase:
· Opting for a 0% finance deal will save you the largest amount of money, but taking this option will mean that you need a much bigger deposit.
· Always check that you.re aware of the Annual Percentage Rate (APR) of the hire purchase agreement as interest rates will vary with different dealers.
· If you opt for Hire Purchase, take the time to understand what you are agreeing to and if you can afford the deal. If your circumstances take a turn for the worse, you may lose both the goods and the money you've paid.
· Read the contract carefully so that you.re fully aware of your rights.
Lease Purchase
What is Lease Purchase?
Lease purchase is a finance option which is aimed at VAT registered businesses or companies. The monthly rental is determined by 4 factors:
1. Cost of the vehicle
2. The length of time the vehicle is hired for
3. The estimated future value of the vehicle
4. The proposed annual mileage
Advantage of Lease Purchase - only a small deposit is required and the monthly payments are generally lower than most other finance options.
Disadvantage of Lease Purchase - a balloon payment is required at the end of the leasing term which may exceed the car's actual value. VAT can only be reclaimed if the vehicle is used for business purposes only.
Points to consider if opting for a Lease Purchase:
· Lease Purchase is a good option if you finance a vehicle which is known for retaining its residual value well.
· Lease Purchase is not a good option if you wish to purchase a fleet of vehicles as maintenance costs will be high, and you stand to lose a large sum of money if the fleet's estimated end value has depreciated.
