Hire Purchase Finance Explained
What is car finance?
Car finance is when you borrow the value of the vehicle from a lender in order to purchase it. Then you'll make monthly repayments that will cover the car's value plus interest until you've paid back what you borrowed.
Finance contracts can vary in length, starting from 12 months to 7 years. The main advantage of purchasing car finance is that you can pay for the vehicle in manageable segments while you drive it.
What is hire purchase finance?
Hire purchase (HP) finance is one of the simpler finance products out there. Once your application is approved, you'll pay back the lender the car's value plus interest until it's all paid off. After the contract ends, you'll then become the owner of the vehicle.
Is hire purchase right for me?
If you're not sure if HP finance is the right option for you, it's best to consider the following questions:
Am I certain that I want to own this car once I've paid it off?
Hire purchase finance is one of the simpler finance options because you don't have the option to return the vehicle once the contract ends. This means that you'll either continue to drive the vehicle or sell it yourself.
It's important to remember that finance contracts can last up to 7 years, depending on the lender and your budget.
Will I be able to keep up with the monthly repayments?
Because you'll be making repayments to ultimately own the vehicle, this can result in the payments being more expensive in comparison to the other car finance products available.
It's also important to remember that your credit score and history will be taken into account when determining if your application is approved. A less than perfect credit score can result in larger repayments to ensure that the lender is paid back in full.
Failing to keep up with monthly repayments can result in the repossession of the car, and in some cases, you may still be expected to pay the difference if the vehicle is sold-on for less than the market value.
What do I need to apply for hire purchase finance?
If you're thinking of applying for a hire purchase finance contract, you'll need the following documents:
- Driving licence
- Proof of income
- Proof of address
You should also consider your budget and whether you're going to use a deposit. If you decide to include a deposit in your application, this can reduce the amount you would normally borrow.
Your credit rating will also be taken into account as well as your credit history. When lenders consider an application, they have to determine the likelihood of the loan being repaid.
What are the pros and cons of hire purchase finance?
The main advantages of hire purchase finance are:
- The payments are fixed and the finance is agreed on upfront, you'll find it easier to budget for the duration of the contract.
- There are also no mileage limits like with PCP finance, so you won't risk facing any additional charges.
The main disadvantages of hire purchase finance are:
- That the payments are higher in comparison to other car finance products
- The loan is secured against the car, so you risk it being repossessed if you fall behind on payments
- Failing to make the payments on time can still impact your overall credit score
Why choose Rix Motors to apply for hire purchase car finance in Warrington?
If you're interested in financing your car in Warrington, you can do so easily with us. We have a simple, easy to complete, finance form on our website that allows you to complete the initial application without any problems.
We also have a great selection of used vehicles that are finance ready, so why not browse through our range today?