Hire purchase is the type of vehicle finance tailored towards people who want to own their vehicle, but do not necessarily have the money to buy one up front. Here’s how it works.
A standard hire purchase deal involves regular monthly payments. This cost is calculated on the difference between the retail value of the vehicle, and the depreciated value plus interest. While contract purchase gives you the option at the end of the contract to purchase the vehicle, hire purchase automatically entails the purchase of the vehicle.
Hire purchase deals are only recommended for those who definitely want to take ownership of the vehicle at the end of the contract. This will involve any balloon payments which are attached to the contract, such as the depreciated value. These deals typically last between 2 and 4 years, although the agreement can be settled at any time.
Advantages of Hire Purchase:
- A low initial payment
- Fixed mileage contract
- Ideal for non-VAT registered customers who want eventual ownership of the vehicle
- Effective budgeting with balloon facility, ownership of the vehicle is acquired once the balloon has been paid in full at the end of the contract
- Monthly payments are not subject to VAT
Advantages for Businesses:
- The vehicle will become a company asset at the end of the contract
- Hire purchase frees up finance for other aspects of your business
- The vehicle will appear on your balance sheet and you can record the value against taxable profits
Disadvantages of Hire Purchase:
- Any balloon payments must be paid for at the end of the contract
- Some balloon payments may comprise more than just the residual value of the vehicle
- Fully comprehensive vehicle insurance is required
- Maintenance or any other value added services is not included
Is Hire Purchase Right for You?
Hire purchase is definitely a lot more flexible and accessible than other types of vehicle contract, offering a simple monthly payment structure. It can be ideal for individuals who want to own a car eventually, or for businesses who want to spend less on company cars.
Browse our personal leasing and business leasing deals to find your ideal contract! We offer hire purchase across a wide range of top brands and models, so you’re bound to find something to suit you. Alternatively, get in touch with our leasing consultants, and they’ll help you choose a deal that matches your needs and budget perfectly.