What is Hire Purchase

Hire purchase agreements are a popular choice for many people looking to set off in their own mobile homes. This type of loan allows you access to your dream vehicle without having to pay excessive upfront costs. Whilst this option allows people to enjoy a motorhome or campervan when they otherwise would not, there are hire purchase advantages and disadvantages to be aware of.

If you’d like to explore your finance options, take a look at our motorhome finance page or browse our other vehicle loan options and see how Auto Finance can help get you on the road in the perfect vehicle for you.

What is hire purchase?

A hire purchase is an arrangement for buying goods in which the buyer makes an initial down payment and pays the balance plus interest in instalments.

Hire purchase agreements allow you to buy at any time during the agreement. Hire purchases can benefit customers with bad credit by spreading the cost of expensive items that they would otherwise not be able to afford. This is great if you’re looking for a mobile home but your finances mean you can’t pay outright.

When you opt for a hire purchase agreement, you’ll usually be expected to pay an upfront deposit cost of around 10 to 20% of the vehicle value. From here, you’d be expected to make monthly payments towards the cost of the vehicle until you’ve paid off the full amount.

It is important to note that you will not own the item until all payment instalments are made.

Now you’ve got an overview of what the process entails, it’s time to dive into hire purchase advantages and disadvantages.

Who is hire purchase for?

Whilst opting for a hire purchase agreement is an option for almost any driver, there are a few individuals who may especially want to go for this type of loan:

Business owners: if you’ve got a small business and travel is a big part of your job then a hire purchase vehicle can be a great asset without costing your business too much money.
Self-employed or freelancers: If you work independently your job can take you all over the country. A hire purchase is a safer option if you don’t have a strict 9-5 income.
Individuals with no credit history: if you’ve never financed anything then a hire purchase can be a great way to build up your credit score.

Advantages of hire purchase

There are many benefits to opting for a hire purchase agreement, these include:

Getting your vehicle straight away

Opting for a hire purchase allows you to get the keys to your mobile home as soon as you’ve signed your agreement. This is great if you’re in immediate need of a vehicle and don’t have the bulk payment needed to pay off the entire vehicle costs.

Many people use things like motorhomes and horseboxes for work purposes so being able to access a mobile space straight away can help prevent a negative impact on your work. If you’re interested in using your vehicle as a workspace, you can check out our blog on how to turn your van into a mobile office.

Spread the cost of your purchase

Buying a larger vehicle like a motorhome can be costly in comparison to standard cars, with the average campervan costing around £60,000 or more. For many people, paying this amount in full is impossible but a hire purchase agreement allows you to spread this cost out in manageable instalments. This means that everyone can afford more expensive or high-value items they would otherwise be able to afford. As long as you’ve got an acceptable credit history, you can enjoy cruising in a motorhome or campervan whilst balancing your other expenses.

If you want to deep dive into the costs of mobile vehicles you can check out our blog on caravan costs.

Flexibility

You can choose to pay your loan back over a period that is best suited to your finances. With this payment option, you can choose to repay your loan over a period of 12 months to 10 years, sometimes even more if you’ve got a large or more expensive vehicle. The repayment length is also agreed upon before you sign so you’ve got time to budget well in advance. Some companies also allow you to repay your loan early which means you can own your vehicle earlier should you find the money.

Own your vehicle after payment

Many other options like leasing don’t allow you to own your vehicle and it can only be traded in or returned. Hire purchase means that you will own your mobile home once you’ve made your final payment. This is especially beneficial for vehicles like motorhomes which are considered long-term investments and won’t need to be replaced or upgraded anywhere near as frequently as standard cars.

Build your credit score

If you’ve never financed anything before then a hire purchase can be a great way to build up your credit score to allow for further loans or finance options in the future. If you’re certain you’ll make your payments on time this will help lenders see that you can be a trusted client and improve your credibility for any further loans.

Fixed interest rates

Many lenders offer fixed interest rates which is brilliant if you want a predictable payment plan. Knowing the interest rates up front means you can accurately budget and you won’t be in for any surprises of increased APR or interest rates.

What to consider before a hire purchase agreement

If you are considering a hire purchase agreement for a vehicle, here are some factors to keep in mind:

Budget in advance

Before you enter into a purchase agreement you need to ensure you’re comfortable with the terms and will be able to repay your loan amount consistently for a year or more. If you want to know estimates before you apply, you can use a vehicle finance calculator. This will tell you how much your monthly repayments are expected to be based on your loan amount, length and credit score. Be sure to factor other compulsory expenses like fuel, insurance and MOTs into your budget too.

Ensure you’ve got a good deal

Shop around to ensure you’re getting the best loan terms for your chosen vehicle or requirements. No interest and interest-free can be seen as hire purchase advantages and disadvantages depending on what you’re looking for from your loan so make sure you know which is best for you. Pay special attention to interest rates; if you’ve got a good credit score you shouldn’t be expected to pay more than around 5%.

Carefully check your agreement terms

Be extra attentive when checking the terms of your loan and always read any small print and clauses that involve early repayment and any potential additional fees or charges. Before you sign your contract, double-check that all your details are correct and the loan amount and repayment time are in fact what you requested.

Inspect your vehicle

An incredibly important factor that people often forget to consider when agreeing to a loan is the condition of a vehicle. Always inspect the motorhome you want for yourself before you agree to pay for it. If you discover faults or damage once you’ve purchased your vehicle it will need fixing and this can not only extend the process of you getting on the road but it can also result in charges on your end for maintenance.

Research other finance options

Hire purchase isn’t the only finance option available for mobile homes and it’s important to ensure you’re picking the right loan option for you. You have the option to lease a car and return it at the end of your contract or you can take out a personal contract purchase (PCP). Research each one of your options and then decide which payment option is the best for your situation.

Make the right finance choice at Auto Finance

If you want to ensure you’re getting the best deal on your vehicle loan then the best place for you is Auto Finance. Our experts are on hand to contact you to provide advice and explanations of different loan options and which one might be the best for you. With our vehicle finance calculator, you’ll be able to see how much you could be expected to repay based on your credit score, loan amount and loan length before you agree to anything.

We’ll scour the UK to ensure you get the best rates for whatever vehicle you choose, whether it’s a cosy caravan or a practical horsebox.