Hire Purchase

With tough competition from the high street banks, many manufacturers and dealers are hitting back with attractive HP (hire purchase) offers. In this type of deal, you have to pay a deposit (normally at least 10% of the car's price), and then pay off the balance (with interest) in monthly instalments over an agreed period of time. There's usually an administration fee to pay with the first payment and an 'option to purchase' fee with the final one.

Advantages

• It is usually very simple and easy to arrange.

Disadvantages

• As you do not own the car until the end of the contract, you may not modify it without the lender's permission.
• Until the car is fully paid for, it doesn't belong to you, so if you default on the loan, your car may be repossessed. (However, there may be some exceptions to this, which you can find out more about in the Living with Credit Safely section on InterDebt ).
• You may not sell your car to a third party until you have fully paid off your loan.

Car hire purchase is so-named as the buyer hires the car from the lender until they have made the agreed amount of monthly payments, after which they then own the car (the 'purchase').

Rates

The APR for this type of loan usually ranges from about 8 to 13%; however interest rates vary between dealers, so check out the APR to tell you the real cost of borrowing. The monthly payments may be higher than with some other finance methods, but the overall sum paid back may be lower. However, if you have a good credit record, you may find that a competitively priced personal loan is cheaper.

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