Hire purchase (conditional sale)
Aside from a personal loan, hire purchase (HP) is generally the most straightforward type of finance, and finance companies tend to offer competitive rates. HP works in a similar way to an unsecured loan, but with less risk to you and the finance provider because the credit is secured against the car.
HP is usually arranged through the dealer when you buy the car, so its a quick and easy way to get credit. Agreements involve an up-front deposit usually around 10% of the loan followed by a series of fixed monthly payments. Although you are the registered keeper of the car, the finance company remains the owner until the final payment is made. At this point, title passes to you.
Choose hire purchase if
• You want to own and keep the car long-term.
• Your budget suits fixed monthly payments.
• You want low risk; credit is secured only against the car.
• You want flexibility; loans can run from two to four years, and monthly repayments can be lowered with a bigger up-front deposit.
Watch out for
The option to purchase Youll need to exercise this if you want to own the car at the end of the agreement. There is usually a nominal fee of around 100 attached, included in the APR.
Early settlement fees If you need to sell the car before the finance agreement is complete, you have to repay the debt first. Contact your finance company before you do anything.