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Hire Purchase

Hire Purchase is one of the most common ways of funding a vehicle purchase.

It is normally a fixed cost, fixed period loan of money linked to (or secured) on the purchase of a vehicle.

Advantages:

  • Simple to understand
  • Minimum deposit usually the VAT.
  • If you or your business are VAT registered you are able to reclaim the vat in your next VAT quarter.
  • Monthly payments are not subject to VAT as you have already paid all of the VAT upfront.
  • The vehicle will appear on your balance sheet.
  • 100% of your vehicle purchase cost can be offset against your taxable profits for the year

Disadvantages:

  • No ability to reclaim vat if you are not vat registered
  • You are only able to take ownership to the vehicle at the end of the agreement once the option to purchase fee has been settled.
  • Dedicated Funding product which does not include maintenance or any other value added services.
  • You must have fully comprehensive vehicle insurance.

More Information about Hire Purchase:

Early Settlement - A HP agreement can be settled at any time by the customer by paying the balance of finance outstanding and Option to Purchase fee to the lender. The lender may allow the customer a rebate of the interest if the outstanding finance balance is settled before the agreement end date. If it is an HP agreement Regulated under the Consumer Credit Act then the minimum amount of rebate is laid down by law.

At the end of a HP agreement, once all the contracted payments have been made, the customer will usually pay the Option to Purchase fee and take legal title to the goods. However, this is a true option. The customer could return the vehicle to the finance company if the customer so desired (even though the vehicle has effectively been paid for).

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