Chances are that you are reading this article because you have questions such as, “how does a hire purchase work” and “what are the benefits for opting for a hire purchase.” This article will answer many of your questions regarding this financial product and will also help you understand how to find a good purchase.
A hire purchase is an agreement between two parties that is the customer and the lender. In this type of agreement, the customer selects a vehicle and the lender gives the customer the required funds to purchase the vehicle. After the vehicle has been purchased the lender hires back the vehicle to the customers until all the dues have been paid for in full. This means that, the buyer can use the vehicle while he owes the lender money however; the title of ownership of the vehicle will not be in the customer’s name until all dues are cleared.
Hire purchase contracts are considered to be beneficial for three reasons. The first reason is that these contracts allow customers to know in advance how much they will have to pay every month. The second reason is that, these contracts allow customers to get tax deductions if they use the selected vehicle primarily for business purposes. The third reason is that, these contracts allow buyers to get fixed interest rates that are affordable while they use a hired car that will eventually be theirs. These contracts usually allow buyers to also choose various other features such as the tenure and certain terms of the contract.
Before looking for a hire purchase, buyers should remember that the lender will be guaranteeing the loaned amount against the vehicle and at times, trade ins or cash can be used as deposits, if that option is provided. Until the full amount has been paid to the lender, the vehicle will not be in the name of the buyer. Buyers are encouraged to opt for a lender who offers lowest interest rates, a flexible tenure and flexible terms so that paying back the loan amount does not become a problem for the buyer.
While looking for lenders, for a hire purchase contract, buyers should keep in mind that there are many lenders that offer this type of commercial financial product, hence buyers should do some research, understand the terms of the contract and then select a lender accordingly.
While understanding how does a hire purchase work, buyers should note that these agreements are ideal for sole traders and partnerships or companies that use an accruals basis to calculate for GST. Buyers who use other methods to account for GST may want to do some research about other products such as Novated Lease or Chattel Mortgage.