Hire Purchase
Hire purchase is an arangement where you borrow the money from a lending company and pay it back in monthly installments over an agreed period of time. On top of the amount you borrow you also pay interest - this is effectively the lender's profit for lending you the money.
Interest can affect your repayments substantially and it is always advisable to negotiate the lowest interest rate possible. The APR rate gives you the real cost of borrowing. Don't just accept the first rate offered, negotiate and shop around.
How much your monthly installments are will depend on the amount you borrow, the number of months you will take to pay it back (usually 12, 24, 36 or 48 months) and the interest rate the company is charging.
Hire purchase agreements will require you to pay a deposit. So, say your car costs £5000, you may need to pay a cash deposit £1000 and you will be borrowing and repaying the remainder - £4,000. Deposits can and will vary and can sometimes be used as a negotiating point with the dealer.
Generally, it is best to pay the largest deposit you can reasonably afford and repay the loan over the shortest period possible - that way you are paying the least interest possible. Click 'here' for a calculator to help you work out repayments. Monthly hire purchase payments may be higher than some other methods of borrowing, but the overall amount you pay back is usually lower.
Hire purchase loans are secured on the car you buy. This means that, once you have repayed the loan you will own the car outright but, if you fail to keep up repayments, the lending company may take the car away from you (reposses it) and sell it to reclaim the money you owe. This would affect your credit record and, if selling the car didn't pay off the balance, you would still owe that amount and have no car! So make sure your repayments are well within your comfort zone.
