We know that all the different car financing plans can be extremely confusing – just which one are you supposed to pick to fund your car? Well before you start shopping around or comparing car finance deals, we’d like to help you understand how some of these plans work. Here’s more information about the Hire Purchase Agreement….
How it works
The commercial hire purchase agreement is how people are able to afford items which cost more than what they have on hand. Basically, the person “hires” their vehicle from the business which loaned them money. Instead of an outright lease, all the monthly instalments which you make as repayments to your lender go towards the payment of the car itself.
Because of the nature of this agreement, the ownership of the car rests with your lender until you have made enough payments to cover the cost of the car. This is normally determined by the contract between you and your lender. The car is held as a security in the meantime which means that you are likely able to get lower interest rates and better terms for this car financing plan than compared to a personal loan instead.
Once you have come towards the end of the contract (and have met all your payment obligations), the ownership of the car is transferred to you!
The Hire Purchase Agreement has lots of benefits because the car itself is used as collateral. Besides lower interest rates, they can also be fixed so that it’s easier for you to manage your monthly finances. Being able to predict and set how much you need to put into your car financing every month allows you a great deal of stability. Deposits required at the beginning of your loan are also generally quite low too.
There is also benefits with respect to tax waivers – you are generally excused from sales tax or VAT, even on your monthly instalments. For businesses, that can be a great deal for exemptions while helping you to manage your cash flow since you don’t have to put up a large amount of capital for business vehicles.
Most importantly, when you’re done paying the instalments, you will earn the right to the title of the car as opposed to when you pay rental for the lease of a car.
While you get own the car eventually, if you break your agreement or contract somewhere in the middle, you don’t get to own any part of the car. This means that if you default on any of your payments, your lender can take the car back or repossess it without question. Obviously your credit rating will be affected too.
You can find out more about the Hire Purchase Agreement with The Smarter Finance Company. Let us help you to compare and contrast the different financial tools to find one that suits you and your needs best!