Usually, you’ll first need to put down a deposit on the car you want to buy. For most hire purchase agreements this will be 10% or more of the vehicle’s value.
The rest of the value of the car will then be paid off in instalments over a period of 12 to 60 months (one to five years).
Hire purchase is arranged by the car dealer, but brokers also offer this service. The rates are often very competitive for new cars, but less so for used cars. For second-hand cars the annual percentage rate can vary from 4%–8%. The lower the number the better.
The rate could be higher for example because you don’t have a good credit score. You can check your credit score for free with:
The loan is secured against the car, which is why you can’t own it until you’ve made your last payment, including paying the Option to Purchase fee.
Make sure you understand the terms and conditions of your loan before signing the contract. For example, once all repayments have been made you pay a final fee, known as the ‘Option to Purchase’ – once you’ve paid this you’ll own the car. This is typically £100–£200, but it does vary so ask how much it will be.