There are many different ways in which to purchase a new or used car, from financing the car yourself, through leasing and HP arrangements that may be taken out with the dealership or a third party. As with the vast majority of financial products out there, it is wise to compare HP car finance deals available to you in order to ensure that you are getting the most for your money.
As HP deals can be constructed in a range of different ways when paying for a car, there could be a substantial difference between the rates offered by providers, so spending a good deal of time on an HP car finance comparison is the best way to make sure you get the best deal. We have put together some of the most frequently asked questions about HP car finance in order to help you make the best decision when it comes to getting that new set of wheels.
The first question many people will have about hire purchase in regard to how it works. If you’ve never bought anything via hire purchase before, you may not have any idea whether what you are being offered is a good deal, or is on terms which are not the best value for money.
A hire purchase deal will pay for the vehicle outright over a period of time. This means that you are not on the hook for the entire cost of the vehicle upfront, only being required to put down a deposit at the beginning. The remainder of the balance, as well as the interest is split over a set number of months.
Generally speaking, monthly instalments are the way in which most people will pay for a hire purchase deal. At the end of the payments, you will be the proud owner of your car.
As we’ve mentioned, at the end of the HP terms, once the final payment has been made, the car belongs to you. In contrast, at the end of a lease agreement, the car is owned by the company it has been leased from. At this point, you may be presented with two options, either return the vehicle and begin again, or, as in the case of PCP (Personal Contract Purchase) you could pay a final payment, often known as a ‘balloon payment’ in order to own the car.
When making an HP car finance comparison, you need to take into account a number of key factors, to try to find the best deal for your needs.
Putting together the down payment you can afford upfront with the monthly payments you need to make over the term of the deal to calculate the total cost of the car will give you a pretty good idea as to how good the overall deal is. That said, you may favour a lower monthly payment spread over a longer term, which is likely to make the overall cost more expensive, even if the terms may be more suited to your finances.
No, unlike PCP or PCH plans, you are not charged extra based upon the distance you drive in a given year.
Unlike the small print in a software licensing agreement, which many people simply ignore, you should look at all aspects of the financing deals when comparing the offers made by providers.
Essential aspects to consider include the degree of flexibility in the payment terms. Do you have to pay a penalty if you wish to pay off more than your usual monthly payment for example? Similarly, be clear as to what happens if a payment is missed. Nobody should enter into a long term finance agreement if they are concerned that they will not be able to keep up with repayments, but sometimes life gets in the way of your plans.
If you are taking out a loan to pay for a car, legally the car belongs to you once you have paid for it. Yes you are required to make the loan payments, and you could end up with your credit score being adversely affected if you miss payments, but the car would still be yours. If you opt for HP to pay for your car, you do not own it until the final payment has been made.
As there are a range of different ways in which an HP plan can be constructed, the repayment terms can be fairly flexible. In addition, there are often relatively low deposit payments needed when purchasing a car in this manner. Perhaps useful in these uncertain times is the fact that interest rates on many HP deals are fixed. In some cases, the car could also be returned at no cost if you have paid off more than 50% of its value.
One aspect which attracts many people to HP policies is the absence of a lump sum payment at the end of the term. Once the final monthly payment has been made, the car is yours.
If you are likely to be unable to make a payment on your HP deal, it is best to be upfront with the finance provider. It is possible that you will be able to extend the agreement or come up with an arrangement to pay off the outstanding amount over a set period. This is not a guarantee, as providers have their own policies for dealing with missed payments. As the car is not owned by you until the final payment, your car would be at risk of repossession if payments are missed.
When you compare HP car finance deals, it is a good idea to look at the way in which missed payments are dealt with by each provider you consider. Similarly, you should also be aware that your credit score will be affected if payments are missed.