With car finance there is no “one size fits all”. What may be the best option for your friend or your family member, may not be the best solution for you. This is because there are multiple factors to consider when looking at what option is most suitable, such as affordability, credit rating and your vehicle requirements.

Therefore, it’s important to consider the different options carefully so you can make an informed decision for yourself.

You may have seen our guide last month explaining Personal Contract Purchase (PCP) loan agreements. However, if you’ve decided PCP isn’t for you perhaps hire purchase is your answer.

So, if you’re interested in learning the benefits of hire purchase and whether it’s the best loan option for you then stick around.

Hire Purchase - How Does It Work?

A hire purchase agreement is a popular car finance option which allows you to borrow a set amount of money over an agreed period of time (loan term). The term of a hire purchase agreement normally lasts between two and four years, but this can differ depending on the circumstances of the individual.

When you take out a hire purchase agreement the cost of the loan (including the interest), is evenly divided into monthly instalments and as soon as the last payment is made, the car is completely yours.

For the majority of hire purchase agreements, lenders will request a deposit before the start of the contract. However, it’s really a “half empty or half full” situation, as a higher deposit will usually result in lower monthly instalments.

Hire purchase agreements also provide the option of paying off your loan early, so if you suddenly find yourself winning the lotto, or – perhaps more realistically, receiving an unexpected pay rise, you have the option of clearing your outstanding balance at an earlier date.

What Are the Benefits of Hire Purchase?


Unlike PCP agreements, there is no balloon payment with a hire purchase agreement. For some individuals, this is a huge benefit as the thought of a large payment looming at the end of an agreement is a daunting prospect.

Another winning feature of hire purchase is there is no mileage limit, so you don’t need to be anxiously watching the numbers on the odometer creep up each time you get in your car. And because you’re also paying off the full cost of the car, the car will feel more like you own it.

What’s more, where PCP agreements are usually only available to those with a good or excellent credit rating, hire purchase agreements are available to individuals from all credit backgrounds.

What to Look for In A Hire Purchase Agreement

Like with any loan agreement, it’s important to look carefully at the details of the agreement before signing the contract. This includes the interest rate offered by the lender, as the type of interest rate and the percentage they charge can have a big impact on the cost of your loan. If you have any uncertainties around interest rates, we recommend checking out our super easy Interest Rates Guide, for a simple explanation.

Although no balloon payment is required in a hire purchase agreement, an ‘option to purchase fee’, is usually included and must be settled before you purchase the vehicle at the end of the agreement. Don’t worry - this only requires a small payment to cover the administrative costs for the finance company to transfer the legal ownership of the vehicle into your name, but it is something to be aware of prior to taking out your loan.

How Does Your Credit Score Affect Hire Purchase?


As we mentioned earlier, hire purchase agreements are often still available to those with lower credit scores, however if you have a low credit score you can expect to pay higher interest rates. This is because lenders view you as a greater risk, and they’ll want to be sure you’re going to pay back all that you borrow. For the same reason, you may find you are asked to contribute a larger deposit than someone with a perfect credit rating.

How to Decide if Hire Purchase is Right for You


If you’re likely to rack up a lot of miles commuting to and from work, or you often embark on long road trips, you may be better suited to a higher purchase agreement which has no mileage restrictions. And if you’d prefer to pay slightly higher monthly repayments rather than defer a lump sum to the balloon payment, hire purchase is the best way to go.

Alternative Finance Solutions

If you don’t think hire purchase is the right option for you then why not consider a PCP or lease purchase agreement?

PCP is generally the most popular alternative to hire purchase, so if you want to learn more about PCP check our quick and easy guide ‘PCP Explained’ - for all the details. Alternatively, you can find more useful information about all the different types of loans we offer on our loan options page.

Hire Purchase Loans at Creditplus

If you’d like to discuss your loan options with one of our dedicated customers advisors, simply fill in our no-obligation application for and a member of our team will be in touch shortly.

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Learn More About Hire Purchase

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