The pros and cons of hire purchase

The pros and cons of hire purchase

author: Holly

By Holly

If you’re thinking of taking out a car on hire purchase, it’s important you understand the ins and outs of what you’ll be signing up to.


Let’s take a look at the pros and cons of hire purchase and the other options available for financing your dream car.

Hire purchase and second hand car buying

What’s hire purchase?

If you choose to buy a car on hire purchase, you’ll be asked for a deposit - usually 10% (but this number can change) - and need to agree to paying monthly instalments with interest towards the remaining balance.

It’s not until your final payment clears that you’ll own the car. As the name suggests, in a sense you’ll be hiring the car until you finish paying for it.

Make sure you shop around to grab the best deal. The interest rate may be lower elsewhere and cost you less over time.

Pros and cons of hire purchase

What are the pros?

  • You don’t have to use your savings or borrow to pay for your car (although technically the car itself is on loan until you’ve finished paying for it).
  • You can spread the cost over an agreed time period to make paying for it more affordable. Typically, repayment terms on hire purchase can range anywhere from one to five years.
  • With a hire purchase, the interest rate is fixed. When you sign the agreement, you’ll know exactly what you have to pay each month and for how long.

What are the cons?

  • Interest will be added to your monthly payments meaning you’ll pay more than if you paid for the car upfront.
  • When you take out a hire purchase agreement,  the provider technically owns your car until you’ve finished making your payments. This means they have the right to repossess your car if you fail to keep up with your repayments.
  • While the repayment term can be flexible, bear in mind that the longer you’re making payments for, the more interest you’ll pay on top of the cost of the car.

What options do I have when buying a second hand car?

What other options do I have?

Hire purchase isn’t your only option when buying a car. You could choose to  finance your car in a different way. One option is a personal loan. You could apply for this through a mainstream lender or through the car dealership you’re buying your new wheels from (although the latter option can be more expensive).

Alternatively, you could consider leasing a car through a personal contract purchase (PCP) or personal contract hire (PCA). PCP is similar to hire purchase in that you pay monthly instalments. At the end of the agreement, you’ll have the choice of either giving the car back, putting the amount owed to you towards a new car, or making a one-off payment (balloon payment) to purchase the car. With PCA, you give the car back at the end of the contract.

You may even be able to use your credit card to pay for all or some of the car. Of course, this will depend on your credit limit, but it might be a way of spreading the cost.

Can I use cash to buy second hand car?

What about cash?

Have a think about whether you need the latest model or can make do with a ‘run around’. Remember, whatever you borrow, you’ll pay back. Consider your budget and have a think about how much you can realistically afford to pay each month.

If you choose to use your savings, as a ‘cash buyer’ you’ll save money in the long-run as you won’t pay interest. Plus you may even score a discount on the asking price.

Credit history and second hand car buying

Will they check my credit history?

If you decide to go ahead with a hire purchase agreement (or any borrowing option), make sure your credit history is in the best shape. Lenders will check your credit history to see how well you’ve managed credit in the past. Any negative marks like a missed payment will be visible and your application could be declined as a result.

Head here to find out how you can check your credit history for free.  

Disclaimer: All information and links are correct at the time of publishing.

author: Holly

By Holly

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The pros and cons of hire purchase The pros and cons of hire purchase