Suitability Explanation - A Customer-Friendly Guide to your Hire Purchase  

What is Hire Purchase (HP)? 

Funding a vehicle through Hire Purchase (HP) means you're spreading the cost of the vehicle with a fixed rate of interest over a fixed term, usually between 2 and 5 years. It’s a traditional method of finance for those for whom ownership is preferred as with this type of agreement you’ve committed to buy the vehicle from the funder by making all of the monthly payments and an option to purchase fee payable with the last instalment.  

Is HP Right for You? 

Yes, if you definitely want to own the car or van but haven’t got the immediate funds to do so, but it won’t be a good fit if   

• You don’t want the risk of the residual value  

• You want to use it abroad extensively as there are restrictions 

• Your business involves specific uses, like taxis and driving schools 

• Finding an initial payment, usually between 10% and 50% of the cost, is difficult 

• You’re looking to finance a van and haven’t got access to funds to cover the total vat on the purchase price as this needs to be paid up front 

Benefits of HP: 

There’s some good plus points to HP 

• Fixed monthly payments  

• You will obtain ownership by making all of the payments or by early settlement 

• You choose the term of the agreement (2-5 years)  

• Optional service, maintenance and repair plans for easy budgeting and you can reclaim 100% of the vat 

• Road tax at the current rate is included for the initial 12 months 

• The vehicle will be on balance sheet enabling you to claim capital allowances at determined by HMRC with the depreciation offset against taxable profits 

• No mileage restrictions 

Responsibilities and Care: 

• Comprehensive insurance is a must 

• Prompt payment of fines and charges as if the vehicle is registered to you care of the funder and the bill lands with them, they’ll make an additional charge for their administration 

• Service and maintain the vehicle according to the Manufacturer’s recommendations and keep it roadworthy. Use of  genuine Manufacturer parts is a must and some funders require you to service and maintain at a main franchised dealer. Please check the terms and conditions of your finance agreement.  It’s worth exploring a cost effective service, maintenance and repair package for predictable costs but do bear in mind that the maintenance provider may decline to settle any charges if the total contract mileage is exceeded  

• Non-payment may lead to contract termination and vehicle repossession 

Important Reminder: 

• Only commit to a HP if you’re comfortable with the financial terms 

• Make sure that you fully understand the agreement before entering into it 

In a nutshell, HP is an option if you want to own a vehicle but don’t have the funds available to buy it outright, but it comes with responsibilities.  

Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossessed. Only enter in to an agreement if you are comfortable with the financial commitment and terms.