What is a hire purchase agreement?
A hire purchase agreement is a type of lease agreement which contains an option to purchase at the end of it. After an initial deposit – the amount of which can vary significantly – the outstanding balance is then paid off in monthly instalments.
Ownership passes after all the instalments have been made and the hirer exercises the option to purchase the goods at the end of the agreement. The option to purchase is normally a nominal fee which has no bearing on the market value of the goods.
Hire purchase agreements are a popular way of funding vehicles, and can be used to finance a brand new tractor with a view to owning it at the end of the contract.
What are the advantages of hire purchase?
Hire-purchase deals allow you to spread the cost of buying a vehicle rather than having to find all the cash up front. The risk for a dealer or manufacturer in offering hire purchase is mitigated to some extent by the fact that they can repossess the vehicle if the borrower can no longer make their monthly repayments: because the loan is secured against the car, this means that interest rates can be lower and that people with poor credit records have a better chance of being able to sign up for such a deal.