How hire purchase works

With tough competition from the high street banks, many manufacturers and dealers are hitting back with attractive hire purchase offers.

These are a cross between a loan and a Personal Contract Plan, in that you have to pay a desposit, but the rest of the loan is then just paid off over a pre-determined period. The key thing is that until the car is fully paid for, it doesn’t belong to you; if you default on the loan, your car will be repossessed. The most important points about hire purchase are that:

This is the most popular way of paying for a new car
  • This is the most popular way of paying for a new car, with a huge variety of lenders offering personal loans – so shop around for the best deals.
  • You choose how long you take to repay the loan and there are no restrictions on the type of car you buy or how many miles you cover – you also don’t need a hefty deposit up front.
  • The car will also be yours from day one, but bear in mind that your car will be repossessed if you don’t keep up the payments on it.
  • Often, the more you borrow, the better the interest rate you’ll be offered. But you’ve still got to pay the money back (with interest), so don’t get carried away by just looking at your monthly outgoings.