A Hire Purchase (HP) agreement is a type of financing arrangement that allows an individual or business to acquire a vehicle while making regular payments over a fixed period.
Key Features of a Hire Purchase Agreement:
- Ownership Transfer: In a Hire Purchase agreement, ownership of the vehicle is transferred to the buyer (hirer) once all the payments, including the final “option to purchase” fee, have been made. This means that the hirer becomes the legal owner of the vehicle at the end of the agreement.
- Fixed Monthly Payments: The customer makes regular fixed monthly payments over the agreed-upon term of the Hire Purchase agreement. These payments include the cost of the vehicle plus interest and any additional fees.
- Deposit: The hirer may be required to make an initial deposit upfront, which is usually a percentage of the vehicle’s total cost. This deposit reduces the overall amount financed and affects the monthly payment amount. In the case of a commercial vehicle, the VAT element of the vehicles value is generally the minimum deposit amount required.
- VAT Registered: The customer or their business do not need to be VAT registered to obtain a Hire Purchase agreement. If the customer or their business are VAT registered then they are able to reclaim up to *100% of the VAT element on their VAT return. (*Commercial Vehicles)
- Tax Allowances: There are many options to off-set
- Interest Charges: The hirer pays interest on the amount financed, which is included in the monthly payments. The interest rate is generally fixed for the term of the agreement.
- Term Length: The term of a Hire Purchase agreement is typically fixed and can range from a term of 2 to 5 years. The term affects the monthly payment amount, with longer terms resulting in lower monthly payments but potentially higher overall interest costs.
- Option to Purchase Fee: At the end of the Hire Purchase agreement, the hirer has the option to purchase the vehicle by paying a final fee, which is predetermined and specified in the agreement. This fee is typically nominal.
- Maintenance and Repairs: The responsibility for maintenance, servicing, and repairs of the vehicle usually rests with the customer.
- Vehicle Use: The hirer is free to use the vehicle throughout the agreement term, as long as they adhere to the terms and conditions of the agreement, such as mileage limits and required maintenance and motor insurance coverage.
- Early Settlement: In most cases, the customer has the option to settle the agreement early by paying off the remaining balance, which may result in a reduction of total interest charges.
- Default and Repossession: If the hirer fails to make payments according to the agreement, the finance company may have the right to repossess the vehicle. The specific terms regarding default and repossession should be outlined in the agreement.
- Credit Check: Finance companies conduct credit checks as part of the application process to assess the hirer’s creditworthiness. These checks are registered with credit reference agencies such as Experian.
Concerns of a Hire Purchase Agreement:
While a Hire Purchase (HP) agreement can provide a way for individuals or businesses to acquire a vehicle, there are also potential concerns and drawbacks that should be considered before entering into such an arrangement:
- Total Cost: Hire Purchase agreements can result in higher overall costs compared to paying for a vehicle outright. The total cost includes the vehicle’s purchase price, interest charges, and any additional fees. It’s important to carefully calculate the total amount that will be paid over the term of the agreement.
- Interest Rates: The interest rates associated with Hire Purchase agreements can vary widely. High-interest rates can significantly increase the total cost of the vehicle, making it important to shop around for competitive rates.
- Ownership Transfer and Early Termination: Until the final payment or full settlement of the agreement, the finance company retains ownership of the vehicle. The customer has the ability to sell or part exchange the vehicle, It would require that a settlement has been obtained from the finance company and this value cleared to allow the title of the vehicle to transfer. In some cases, Early termination of the agreement can involve additional charges. Any costs or charges in relation to the early termination would be detailed within the settlement quotation from the finance company.
- Fixed Monthly Payments: While fixed monthly payments provide predictability, they can also be inflexible if the hirer’s financial situation changes. If the hirer faces financial difficulties, maintaining the regular payments could be challenging. in such cases, The finance company should be contacted to discuss their current situation.
- Credit and Repossession Risk: If the hirer fails to make payments as agreed, the finance company may have the right to repossess the vehicle. This can have negative consequences on the hirer’s credit rating and financial stability.
- Maintenance and Repairs: The hirer is responsible for maintenance, servicing, and repairs of the vehicle. These costs can add up, particularly if unexpected repairs are needed.
- Dependence on Vehicle Value: The vehicle’s value at the end of the agreement can affect the hirer’s options. If the vehicle’s value has depreciated more than expected, the hirer might face challenges if they want to trade it in or sell it. The value of the vehicle at the end of the agreement can fluctuate, Vehicle mileage and condition, service history have a considerable bearing on the resale value of the vehicle. In the case of the sale value achieved being less than the finance settlement, The customer would be liable for any shortfall.
- Motor Insurance: It is a requirement that any vehicle that is subject to a finance agreement be adequately insured with fully comprehensive insurance.
Hire Purchase agreements are a popular way for individuals and businesses to finance the acquisition of vehicles. However, it’s important for hirers to carefully review the terms and conditions of the agreement, including interest rates, fees, and any potential penalties for early termination or default. Seeking legal and financial advice can help ensure that the agreement aligns with the hirer’s needs and financial situation.
Within New Vehicle Solutions Limited there are a number of finance options we are able to provide. Based on our discussions and your responses to our questions we will have narrowed down this selection to the one that may be most appropriate given your personal circumstances and requirements. We do however believe it is important that in making the decision you are aware of all finance options we have available (some of which may not be applicable in your particular circumstances) and have relevant information on the options available. Further information on the types of finance options we are able to offer can be obtained from organisations such as the Finance and Leasing Association www.FLA.org.uk or the Money Advice Service www.moneyadviceservice.org.uk. Details of our available finance options have been presented to you as part of our Initial Disclosure Document – Terms of Business Agreement.
New Vehicle Solutions, Tremains Road, Bridgend, South Wales, CF311TZ
Company Registration Number: 8572112 – VAT Number: 166595858
New Vehicle Solutions Ltd is authorised and regulated by the Financial Conduct Authority, our firm reference number for consumer credit is 685872 New Vehicle Solutions Ltd is an Appointed Representative of AutoProtect (MBI) Limited which is authorised and regulated by the Financial Conduct Authority for Insurance Mediation, their reference number is 312143.
We are a credit broker and not a lender.
We are permitted to conduct Credit Brokering, Debt-Adjusting and Debt-Counselling in connection with the whole or partial settlement of credit agreements for vehicle finance and consumer hire agreements.
New Vehicle Solutions Limited does not and will not charge any fees for providing any Consumer Credit services.
Some of our lenders may charge administration fee’s to set up your agreement.
Whichever lender we introduce you to, we will typically receive commission from them (either a fixed fee or a fixed percentage of the amount you borrow). The lenders we work with could pay commission at different rates. However, the amount of commission that we receive from a lender does not influence the amount that you pay to that lender under your credit agreement. Any renumeration amounts can be requested by emailing [email protected] prior to the conclusion of the transaction. Our aim is to secure finance for you at the lowest interest rate you are eligible for from our panel of lenders.
Last Updated: 01/08/2023