What is a hire purchase agreement for a car and what issues will I face?

Hire purchase agreement

What is a hire purchase agreement? 

A hire purchase agreement is a way in which you can purchase a car on finance, i.e. you are provided with the car but you have not as yet bought it outright.

For a hire purchase agreement you will be required to pay a deposit initially and then a fixed amount for an agreed number of months. Once you have paid the entire amount you will own the title to the car.

When is a hire purchase arrangement available?

You are able to purchase both new and used cars through a hire purchase agreement.

Are any cars excluded from the possibility of a hire purchase agreement?

Used cars which are over two years old are often excluded from hire purchase agreements as their value will be too low by the time the loan comes to an end.

Which organisations are able to provide me with a hire purchase agreement?

You are able to organise a hire purchase agreement with the following bodies:

  • Banks

  • Car dealers

  • Loan companies

Are there any advantages in purchasing a car using a hire purchase agreement? 

The main advantages of using this method to purchase a car on finance is that a hire purchase agreement is easy to obtain and very straightforward to use and in many cases it is cheaper than other types of loan which are available.

Are there any disadvantages in purchasing a car using a hire purchase agreement?                                    

The two main disadvantages of using this method to purchase a car on finance are as follows:

  1. The car remains the property of the lender until the agreement ends. This means that you cannot sell the car without obtaining permission before the agreement ends.

  2. If you start to fall behind on your payments the finance company can repossess your car and sell it cheaply at auction suing you for whatever is still owed plus their additional costs incurred.

Are there any other options available to me to purchase a car? 

Other than a hire purchase agreement there are two other options available to help your purchase a new car. They are as follows:

  1. Normal unsecured loan

  2. Personal Contract Purchase

Normal Unsecured Loan

  • For a normal unsecured loan you will obtain the money in advance to obtain the goods then repay the debt in monthly installments. A normal unsecured loan is available from banks, building societies and finance companies.

  • Often this is not used to purchase a car as it is harder to obtain than other types of finance as often lenders will only provide to homeowners who have sound finance.

Personal Contract Purchase

  • For personal contract purchase you must initially pay a deposit of up to 20% of the total then an agreed number of monthly repayments for up to three years. Following the agreed period a final payment of the difference must be paid.

  • Although this method offers cheaper monthly payments and a convenient way of funding a new car every three years it is often more costly in the long run than hire purchase and it is difficult to sell the car.

  • As a consequence a hire purchase agreement is the most popular method of purchasing a car on finance.

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For more information on:

  • What are the potential issues which I may face having entered into a hire purchase agreement?
  • What happens if I no longer wish to continue with the agreement?
  • The rules and regulations for hire purchase agreements are stated in the Hire Purchase Act 1984:
  • What happens if I wish to send the car back before this time?
  • How much will this be?
  • Under what circumstances can the hire purchase company repossess the car?
  • Parked on public ground
  • Will the hire purchase company repossess my car without notice?
  • Can the hire purchase company take me to court over the repossession of the vehicle?
  • Selling the vehicle
  • Can I sell a vehicle while it is under a hire purchase agreement?
  • What happens if I bought a car of another which was subject to a hire purchase agreement?