How does Hire Purchase work?
You begin by putting down a deposit, commonly around 10% of the total cost of the vehicle. Depending on your finance provider, you might be charged an admin fee with the first payment. From here, you simply pay the rest of the cost of the car, plus interest, in equal monthly payments. You choose the length of your payment term, which is normally anywhere from one to five years, and once you’ve made your final payment, which may include an Option to Purchase Fee, the car is all yours.

Here are the main advantages and disadvantages of Hire Purchase agreements:

Keeping it simple
Rates and monthly rental payments are fixed, plus there’s no excess mileage costs so it’s easier if you are unsure how much you will use the vehicle.

Flexible to your needs
Hire Purchase plans can be used to buy new or used cars, although it’s worth noting that you might find it tricky to get HP finance for a car that’s more than 10 years old.

Financial security
Hire Purchase plans are secured against the car. This means that if you default on the rental payments, the car can be taken back and sold, leaving you liable just for the remaining balance, if any.
Plus, depending on the circumstances, Hire Purchase offers a higher level of consumer protection than an unsecured personal loan. For instance, if you find yourself in financial difficulties that prevent you from making your payments, as long as you’ve paid back half your loan, you should be able to hand the car back with nothing more to pay, subject to your car’s condition.

What is the difference between PCP and PCH?
People often get confused about the difference between PCP and PCH. PCP is a purchase plan, at end of your contract you have the option to buy the car. Whereas PCH is a hire plan and you do not own the car at the end of the agreement.

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