Purchasing a car involves many financial aspects which can be confusing for a buyer, especially when it comes to financing the purchase. Of all these systems, hire purchase is one of the most preferred systems. This article focuses on the hire purchase with CarMoney and looks at how it stands in comparison to other forms of financing like leasing and personal loans in order to aid the reader in making the right decision.
Understanding Hire Purchase
Hire purchase is a type of credit where you pay a deposit as well as a series of monthly payments. The vehicle is available for use by the buyer from the time of its purchase but the title deed only reverts to the buyer at the end of the final payment. This is the best type of option for people who would like to own a car in the future but they cannot afford to buy a car in cash.
Advantages of Hire Purchase
Another important factor of hire purchase is the fact that the interest rate is fixed and this is good for budgeting. You precisely know the amount of money you will be required to pay each month. Also, because the loan is made against the car, the interest rates are relatively lower than those of the personal unsecured loans. Also, hire purchase agreements are usually flexible whereby you can make payments over a period that is convenient to you.
Disadvantages of Hire Purchase
However, there are some disadvantages that must be taken into account. It is only after the final payment is made that the car belongs to you; this becomes an issue when one is in default of payment. Moreover, if you intend to sell or trade in the car before the payments are made, then the balance must be paid first. Early payment penalties can also be imposed which attract even more expenses in case you want to clear the loan before the stipulated time.
Exploring Leasing Options
Leasing on the other hand is more like paying to use a car for a given period of time say two to four years. After the lease period is over, one has to surrender the car; thus, this option suits those who like to use a car for a few years then look for a new one without selling it.
Advantages of Leasing
Leasing normally entails reduced initial down payment than that of hire purchase, and the monthly installments are cheaper. Operating expenses can also be controlled as many leasing contracts offer service plans. Thus, it enables you to have a more enhanced car than you might be able to manage in other financing techniques.
Disadvantages of Leasing
On the flip side, leasing entails that at the end of the lease period, you do not own the car. It is associated with a number of mileage restrictions and if these limits are overstepped, then the consequences are very expensive. Also, the car has to be returned in a good state, otherwise, certain additional charges may be applied for the damage. Leasing also offers less flexibility in case your situations change since it is not easy to terminate a lease.
Considering Personal Loans
Another option in car financing is through personal loans. In this case, you receive a one-time cash payment from a bank or any other financial institution, which you service by regular installments within an agreed period. The car belongs to you the moment you make the purchase, thus, you gain possession of it.
Advantages of Personal Loans
One of the main benefits of personal loans is the flexibility that such loans offer. There is no limitation to the number of miles one can use the car and one can sell the car at any time he or she wants without incurring any loss. Personal loans also have relatively low interest rates which are even more affordable if you have a good credit score.
Disadvantages of Personal Loans
But personal loans have their own peculiarities. It may be more expensive than hire purchase specifically, and the interest rates can be even higher if you have poor credit history. Also, given that the loan is an unsecured loan where the car is used as collateral, then the lenders can be more selective.
Making the Right Choice
Deciding between hire purchase, leasing, and personal loans depends on a number of factors including the financial capacity of the borrower. If it is crucial to you to own the car at some point and you would rather have fixed monthly instalments, then hire purchase with CarMoney is the most suitable. For those who like to drive new models for every few years without the complications of owning, leasing could be better. If you are keen on getting the money today and not being confined to a specific use, then taking a personal loan would be the best option to take.
It is important to note that both financing methods have their advantages and disadvantages. It is therefore important to consider the financial position, future needs, and decision on whether to own or rent a house. Hire purchase, leasing, and a personal loan are all viable options if you know the difference and apply the option that best fits you.
Related Content