What is hire purchase?
The initial payment and monthly payments are clearly set out at the start of the contract so it’s easy to understand the payments as it’s all set out at the start of the contract.
You will be quoted an APR (Annual Percentage Rate) which is there to show the costs involved in taking out the finance to buy the asset. The contract term is most commonly two, three or four years with an initial payment of around ten percent of the asset cost plus the vat element.
At the end of the contract the customer will pay a fee of around a hundred and fifty pounds and the finance company will transfer title of the asset across the purchaser. This is to cover the finance company’s administration costs when transferring the title of ownership over to the customer. The customer then becomes the legal owner and so has “Title” to the asset.
If the customer wishes to pay off the contract early then an “Early Settlement Figure” will have to be paid to the finance company. Depending on how far into the agreement and how many payments have been paid will depend on how much it will cost to pay off the agreement.
The customer will have to pay the balance of the outstanding capital, the option to purchase figure and any charges levied by the finance company for settling the contract early. If you ask the finance company they will send you a copy of their Hire Purchase “Terms and Conditions” that will set out the liabilities when taking out a Hire Purchase Agreement.