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What Are the Pros and Cons of a Hire Purchase Agreement?

Hire Purchase
UK Car Finance
15, Jun 2022

Hire purchase continues to be the UK’s most popular car finance facility. It’s also the single most common entry-point to vehicle ownership, as the vast majority of drivers simply cannot afford to pay for cars in cash.

Following an initial deposit payment, the remaining balance of the facility is repaid in monthly instalments for several years. The car becomes the legal property of the buyer when the final repayment is made, and the transaction is complete.

Even so, there are inevitable pros and cons to take into account, if considering buying a car by way of HP contract.

Examples of which include the following:

The Pros of Hire Purchase

  • Spread the Costs – Spreading the costs of major purchases like these is often the only viable option for the typical consumer. In the absence of HP contracts (or similar credit facilities), it would be impossible for most people to purchase new cars.
  • Newer, Better, Safer Cars – In a similar vein, being able to spread the costs with HP opens the door to higher-quality vehicle ownership. Rather than having to make do with something that simply covers the basics, buyers can step up to something newer, safer and better than they could otherwise afford.
  • No Major Initial Outlay – Buying a new or used car outright will always put a major dent in the buyer’s budget. With affordable car finance, it becomes much easier to plan ahead and manage your finances, which requires a much smaller initial deposit payment.
  • A Flexible Facility – Car finance is arranged as a bespoke agreement between the issuer and the customer, which can be customised in a variety of ways. In terms of deposit size, repayment period and so on, there are options to suit all preferences and budgets.
  • Poor Credit Options – Last up, it is even possible for consumers with poor credit to qualify for affordable car finance. Many subprime car finance providers specialise in poor-credit car finance loans, opening the door to vehicle ownership for more motorists.

The Cons of Hire Purchase

  • Legal Ownership – The biggest downside to HP is the way in which the customer does not take legal ownership of their car, until they have fully repaid their loan. In the meantime, it belongs to the lender, and therefore cannot be sold or modified in any way.
  • Additional Costs – The cheapest way to purchase a car will always be to buy it outright. Even where interest rates and borrowing costs are minimal, they still add up to a higher overall price than when purchasing a vehicle for cash.
  • Binding Agreements – Lastly, most car finance agreements are fairly inflexible when it comes to get-out clauses. What this means is that if you change your mind at some point along the way, there’s not a great deal you can do to get out of the deal.

For more information on any of the above or to discuss any aspect of car finance in more detail, contact UK Car Finance today for an obligation-free consultation.


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