If you are looking to buy a new car, chances are that you have come across various different options for the several financing options available. If you’re looking at getting car finance for the first time, it can all get fairly confusing. Hire purchase and leasing are two of the most popular ways to finance a new car; however, there are some main differences between them. Read on to find out more about how these two ways of financing a car work and how to figure out which one is best for you.
Hire Purchase
What is HP finance? Car hire purchase is a popular car financing option that involves paying a deposit and then making monthly repayments for a set term, usually a few years. The length of time that you will be paying payments for will depend on the size of the initial deposit that you put down and how much you are paying each month. Usually, the term lasts for up to five years. Once you have reached the end of the contract, you will have to pay a small fee for ownership – usually around £100. When this is paid, you will be the legal owner of the car. Until you have paid off the total amount, the car will be owned by the finance company, dealership, or lender.
Pros:
- You eventually own the car
- Usually a good option if you have a low credit score
- No restrictions on mileage
Cons:
- You don’t own the car until you’ve made the final payment
- Interest rates can be high
- Monthly payments can be high
Leasing
Leasing a car is an increasingly popular way of getting your hands on a new set of wheels. Similar to hire purchase, you will usually put a deposit down and then make monthly payments towards the car for a set term. However, the main difference between hire purchase and leasing is that when the term comes to an end, you have no option to buy the car, and need to hand it back or trade it in for a new one. While this can be ideal for people who like to get a new car every few years, it does mean that you are never actually the owner.
Pros:
- Maintenance, servicing, MOT, and sometimes insurance are often included
- No need to worry about car value depreciation
- Swap your car for a new one every few years
Cons:
- You never own the car
- May have mileage restrictions
Choosing the Right One for You
Whether you get your new car on hire purchase or a lease agreement will depend on your requirements, needs and wants. Consider several factors including how much you can afford monthly, how often it’s likely to be until you want a new car, and whether or not you want to eventually own the car legally.
Today, buying a new car comes with many different financing options. Hire purchase and leasing are two of the most popular. Understanding how they work and the best option for you is important before you buy a new car on finance.
