Hire purchase is one of the most popular options for those seeking vehicle finance. Hire purchase or ‘HP’ is a finance agreement. The vehicle is bought from the financier over a specified time period. When the loan amount has been settled, the customer gains title to the vehicle. The repayments are calculated to encompass the cost of the vehicle and the rate at which the loan is provided. The time period is set by the financier. At the end of the contract, the consumer has the option to purchase the vehicle by paying an ‘option to purchase fee’ or to terminate the agreement by settling the remaining balance.
A Hire Purchase gained its name as the finance provider ‘hires’ the vehicle to the customer. This period of hire is over a set time period, which usually ranges from 12 to 60 months. The vehicle is the property of the finance company until all repayments have been settled and the option to purchase fee has been paid. The customer is responsible for the upkeep of the vehicle and will be the recorded keeper of the vehicle on the log book or v5 document. It is an offence to sell the vehicle without informing the finance company. Should the customer decide that they no longer wish to purchase the vehicle, the vehicle must have been kept in a ‘good condition’. Hire Purchase agreements do not have any restrictions on mileage, however any damage accrued to the vehicle, which is beyond ‘reasonable wear and tear’, is the responsibility of the customer.
A Hire Purchase agreement can be settled at anytime during the contractual period by settling the outstanding balance. Should the customer wish to purchase the vehicle, they will also be required to pay the option to purchase fee. In most cases, any surplus interest will be rebated to the customer by the finance company. If the Consumer Credit Act regulates the Hire Purchase agreement, the minimum amount to be repaid is stipulated by the Finance and Leasing Association.
Once all outstanding balances have been settled and the option to purchase fee has been paid, the title of the vehicle is passed to the customer.