Hire Purchase (HP) or Conditional Sale
Hire Purchase is exactly what it sounds like – a hire agreement which gives you an option to own the car at the end of the agreement. These are normally fixed cost, meaning that the APR (Annual Percentage Rate) is set before the contract begins. The loan period is also fixed – typically three to four years – and the finance agreement is secured against the car being bought, which means that lenders can be flexible in the terms and conditions they offer.
You are the ‘registered keeper’ of the car and responsible for insuring and maintaining it, but the finance company remains the legal owner until the amount you borrowed has been fully repaid.
A Conditional Sale agreement is the same as Hire Purchase, except that you will automatically own the car once the finance has been repaid in full.
At the beginning of the agreement
Once you have found the car you would like to buy, you should agree the amount you want to borrow from the lender, based on the price of the vehicle less any deposit required. Most people part-exchange their old car to help cover this, and some car finance companies may also have special promotions running under which they will contribute to customers’ deposits.
Once the actual sum to be borrowed is confirmed, the dealer will contact the finance company or finance broker and complete an application on your behalf.
At the end of the agreement
When all the repayments have been made in an HP agreement, you will be given the option to buy the car and gain outright ownership. This means paying an ‘Option to Purchase’ fee which covers the administrative cost to the finance company of transferring ownership of the car to you. If you wish to settle a Hire Purchase agreement – either partially or in full – before the end of the agreement, then you are entitled to make early repayments to your finance company. You should speak to your finance company for advice on how best to do this.
Under a Conditional Sale agreement, ownership passes to you automatically once the finance is repaid in full.
Advantages of Hire Purchase/Conditional Sale
Quick and easy to arrange in the showroom.
Credit agreements are regulated, which means you will have rights and protections under law.
A low deposit at the start of the agreement.
Choice of payment terms of between 12 and 60 months (1-5 years).
Repayments fixed at the same amount throughout the agreement.
Things to remember
As Hire Purchase is a hire agreement with an option to buy at the end of it, the finance company will actually own the car until you make the final payment.
Since you do not own the car until the end of the term, you cannot sell or modify it without the finance company’s permission.
Under a Conditional Sale agreement, you will automatically become the owner of the car when the final repayment is made.
To speak to our team about Hire Purchase (HP) please click here.