Before you consider finance
Using finance or hire purchase (HP) to buy a variety of different products from cars, motorbikes to more everyday items such as furniture, televisions or computers is now commonplace. But like any form of credit, once you’ve signed the agreement you are now under a commitment to pay for the item until the end of the agreed payment period. This rough guide below is provided to outline your decision on whether to take out a hire purchase or a conditional sale agreement.
Understanding Hire Purchase and Conditional Sale
When you use other types of credit such as a loan or credit card, the goods bought will belong to the purchaser straight away, but using hire purchase is different:
All the money owed has to be paid in full before you own what you have purchased. The item cannot be for example altered or adjusted in way without the lenders consent.
This means the agreement you have with the lending firm (and not the retailer) will own the item until the last payment has been paid.
This also means the lending firm has the legal right to seize or confiscate the item(s) if you fail to keep up the payments.
You could be made to pay for any form of damage made to the item during the agreement period.
A standard hire purchase agreement – means placing a deposit (percentage of the total amount required) with the remainder being paid by monthly payments which will be the remaining amount borrowed plus interest over an arranged term. When the last payment is made under the agreed term you will the option to own the item outright. Be aware that sometimes the final payment (or settlement fee) can be quite high.
Although similar to hire purchase, Conditional Sale (CS) means you will own the item outright when the last installment has been paid. There is no settlement or any extra fee’s payable.
Doing the Homework
Investigate as many types of credit options as you can have before making a decision. (See our FINANCE OPTIONS page). A straight forward loan arrangement could be more beneficial, than a hire purchase (HP) deal or visa versa. A skilful in deciding which is the cheapest, is by comparing the APR (Annual Percentage Rate) and the total amount payable over the agreement period chosen. Do not forget there will be interest charges and fee’s payable on top of the monthly payments. Set yourself a limit of what you able to afford, bearing in mind should your circumstances change, and you cannot keep up the with the payments, you may lose your goods and the payments as well!
Go Over the Small Print
Lenders are obliged by law to provide you with all the essential information regarding the contract, and for you to go through it before deciding whether to purchase or not. A hire purchase contract should be written in plain English and easy to understand as regards to your obligations, how much you will have to pay and over what period of time. Before you sign, read through the contact carefully to make sure you are totally satisfied.
If there is any part of the agreement you do not understand, or have any questions, speak to the lender or the retailer or get independent advice. If you are not happy or unsure, do not sign.
Protection Insurance and Hire Purchase
Many lenders now offer, payment protection insurance (PPI) that can provide cover if you become ill or are made unemployed during the loan agreement period.
When you buy a vehicle, you can also purchase GAP Insurance (guaranteed asset protection), this provides protection against the shortfall in the load amount if your vehicle is written off or stolen. Consider all your options before choosing what best suits your needs; read all the small print, for example it is highly unlikely that PPI would apply if you were self-employed. Also enquire if payments can be made in cash, as this may work out a little cheaper in the long run.