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Hire Purchase Agreement

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Hire Purchase Agreement

If you’ve got your eye on that shiny car you’ve seen in the showroom, you may well be considering a hire purchase agreement to help you get your hands on it.

Before you go filling in those hire purchase agreement forms, read our easy guide to hire agreements for a better understanding of this type of finance and whether it is the right option for you.

 

What is a Hire Purchase Agreement?

Hire purchase agreements are really popular in Australia, thanks to the fact they are so convenient. This type of borrowing allows businesses and individuals to pay for and use goods over a period of time rather than having to pay the full cost up front.

 

So what is a hire purchase agreement and how does it work?

Under hire agreements, you:

  • purchase goods through instalment payments
  • use the goods while paying for them
  • do not own the goods until the last instalment has been paid.

 

TIP: In Australia, a hire agreement is officially known as a Commercial Hire Purchase (CHP)

 

How do Hire Purchase Agreements work?

As soon as you sign a hire purchase agreement form to purchase a car, the motor dealer sells the car to a finance company. The finance company then rents the car to you for an agreed period of time in return for a set monthly repayment, which includes interest. During this period you do not own the car, as you are really ‘hiring’ it. You are, however, responsible for all ongoing costs associated with the upkeep of the car, such as registration, insurance and any maintenance requirements. A hire and purchase agreement can run anywhere from one to five years, depending on the terms of the agreement, and after you’ve made all the payments (including interest) the car is 100% yours!

TIP: Many ‘car finance loans’ offered by garages and some lenders are actually hire purchase agreements.

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How is a Purchase Hire Agreement different from a Personal Loan?

With a personal loan you are borrowing money to pay for your car, to then own it immediately. With a purchase hire agreement you do not own the car until you make your last repayment – but without having ownership you aren’t able to sell the car if you do run into problems making your repayments.

Remember, with a personal loan a bank isn’t really interested in what you use the money for (e.g. a car, holiday, new furniture) so if your car develops some serious problems not satisfactorily resolved by the manufacturer…well, the lender’s not going to provide any remedies because it has nothing to do with them. By contrast, when you sign a hire purchase agreement form, the deal is between you, the finance company and the supplier. So the financier has a big stake in the car and will likely get involved if there is a dispute between you and a dealer/manufacturer.

 

Are Hire Purchase agreements available for used cars?

Used cars are often a lot cheaper and much better value overall (even if it is only one or two years old) compared to new cars that depreciate in value far more quickly. However, be aware that used cars on hire purchase may carry higher interest rates then a new car. Also, cars more than seven years old might not qualify for financing!

TIP: If you do take out a hire and purchase agreement for a used car, it is important to ask if it was previously bought on hire purchase. If so, you want to make sure that all hire purchase payments have been made on the car so the car belongs to the seller and not the finance company!

 

How flexible are Hire Purchase agreements?

The major drawback of a hire and purchase agreement is its lack of flexibility. Hire agreement interest rates are fixed for the full term, meaning you can’t usually increase your monthly repayments. Or, if you wanted to extend the term of your agreement, for example from two to three years, more often than not you’d be charged a rescheduling fee.

There may be a number of other fees that aren’t clear at first instance or have been bundled into the overall debt you are paying. Finance Monster aims to make you aware of all the terms and conditions of any purchase hire agreement so you feel informed and confident in any decisions you may go on to make before you sign those hire purchase agreement forms.

 

Can I make a final payment before my agreement has ended?

When looking at a hire and purchase agreement, take into account whether the terms of the loan can include a final, or ‘balloon’, payment. This is a variation to the traditional hire purchase model, but is slowly growing in popularity. By setting a larger final payment for the end of the term which can vary according to individual circumstances, you can reduce your monthly payments to better suit your budget.

 

Hire Agreements and Finance Monster

Still wondering what is hire purchase agreement? If you’ve got a car in mind and all that’s standing in your way is deciding which finance option to use, get in touch with Finance Monster – that’s what we’re here for! We will do our best to explain what is hire purchase agreement and present you with the most competitive hire purchase interest rates and agreements out there. We want to help simplify the process for you so the hire purchase agreement you do decide upon has come from an easy and stress-free place. Use our handy hire purchase agreement comparison service to find the perfect deal for you!


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