Car Hire Purchase: The Product In Plain Terms

Car hire purchase: what you are hiring, and when you buy it

Hire purchase does what its name says. You hire the car, the funder owns it, and the option to buy it is exercised by making all the payments. There is no optional final payment, no mileage limit and no condition charge at the end, and the monthly figure is higher than a personal contract purchase on the same car because you are paying for the whole of it rather than the part you use.

What the agreement calls the parties, and why it matters

The document will name you the hirer and the funder the owner, and that wording has consequences. You cannot sell the car before settlement, modifications usually need permission, and the funder's interest is registered so a buyer's check will find it. In exchange, once a third of the total amount payable has been paid the car becomes protected goods and the funder needs a court order to repossess it.

Hire purchase loans are secured lending, not unsecured borrowing

Because the debt is secured on the car, hire purchase is usually cheaper than an unsecured loan for the same applicant, and easier to get on a damaged file. The trade is flexibility: an unsecured loan leaves the car yours from the outset and can be repaid or the car sold at any time, while hire purchase ties the two together until settlement.

Hire purchase advantages and disadvantages, honestly

In favour: fixed instalments, ownership at the end, no mileage limit, no final payment to find, a statutory right to hand the car back at the half-way point, and the section 75 protection that comes with linked credit. Against: higher monthly payments than PCP on the same car, a deposit usually required, the car not yours to sell mid-term, and depreciation entirely yours because there is no guaranteed future value.

Hire purchase early settlement, and what the rebate is

You have a statutory right to complete the payments ahead of time and receive a rebate of some of the future interest, calculated by a formula set in regulations rather than at the funder's discretion. Ask for a settlement figure in writing. It will be more than the sum of the remaining capital, because interest is weighted towards the early part of the agreement.

Questions people ask about car hire purchase

Is hire purchase halal?

Conventional hire purchase charges interest, which is the objection. What exists instead is Islamic motor finance built on murabaha or ijara structures, where the provider buys the car and sells or leases it at a disclosed mark-up. Whether a particular product qualifies is a question for the provider's own sharia board.

What are the hire purchase advantages over PCP?

You own the car at the end with nothing left to pay, there is no mileage limit and no end-of-term condition charge. The cost is a higher monthly payment for the same car and term.

Is one advantage of a hire purchase that it is easier to get?

Often, yes. Because the funder is secured on a car it is buying for you, hire purchase is generally written on weaker files than a lease or a large personal loan would be.

Can I end a hire purchase agreement early?

Yes, in two ways: settle it early with a rebate of future interest, or use the statutory right to terminate once half the total amount payable has been reached and hand the car back. Both are linked below.