Car finance comes in several different forms, but one of the most popular is hire purchase. Before you decide whether or not hire purchase (HP) is the best car finance option for you, it’s best to know what you’re getting yourself into. Read on to find out.

In effect, HP involves hiring the car from the lender until you’ve paid off the balance. The finance is secured against the car itself, and you don’t legally own it until you’ve made the final payment.

While this type of motor finance was once the most popular, it’s now being challenged by PCP, leasing and a few other options. Nevertheless, if you want to buy a car, this is still a great option.

There is often a deposit to pay upfront when signing up for an HP agreement. But depending on the lender, you may be able to find no-deposit options. Just bear in mind that the less you pay upfront, the more your monthly payments will be.

You can decide to pay off the balance of your HP finance at any point during the loan. And the moment you do, the vehicle will become your legal asset.

An APR is applied to every HP agreement, which determines how much interest you’ll pay over the entire term. The better your credit score is, the lower the APR will be — in most cases. But you can save on interest if you’re able to settle your car finance early.

While hire purchase payments may be higher than with other motor finance options, you should consider the many advantages they deliver.

● There’s no lump sum to pay at the end of the agreement

● HP lenders usually perform a range of checks on dealerships before issuing funds

● You’re able to opt into the Voluntary Termination (VT) arrangement after paying half your monthly payments. Hand the car back in good condition, and your HP agreement will be terminated

● Finance is agreed and guaranteed at the start of the purchasing process — so you have a stronger negotiating position

● Mileage restrictions don’t apply

● You can build up equity in the car faster

Before you choose the hire purchase car loan option, consider the disadvantages associated with it.

● In most cases, monthly payments are higher than those associated with other car finance options

● Missing payments could have a significant impact on your credit score

● The car may be repossessed if you fail to keep up with your monthly payments — severely affecting your credit score for several years

You may come across the term ‘conditional sale’ in your search for car finance. This is exactly the same as a hire purchase agreement. However, a conditional sale guarantees you ownership of the car the moment you make your final payment. Make sure you check whether or not there’s a final balloon payment to make to end the agreement, as this catches many people out.

Before you sign up for a hire purchase agreement, you should be sure that this is the right car finance option for you. If you can’t keep up with the repayments, the vehicle may be repossessed, which could have a serious impact on your ability to secure financing in the future.

HP is a good option if:

● You like owning cars for a long time

● You want to legally own your car without having a large balloon payment to pay at the end of the agreement

● You don’t want mileage limits imposed on you

● You want to build up equity in your car relatively quickly — giving you the option to trade the vehicle in relatively quickly

To make sure you’re getting the best possible HP agreement for your car financing needs, turn to an experienced broker. You’ll get a range of options to choose from, as well as advice based on years of industry experience.