A lot of the car loans offered by garages on new cars are hire purchase loans – but not everyone understands the pros and cons of buying a car on hire purchase.
When you buy a new car using a hire purchase agreement , the car dealer actually sells the car to a finance company. The finance company then rents the car to you . You usually have to put down a small deposit and then make fixed monthly payments for a set period.
During the “rental” or hire period , you can use the car but the finance company actually owns it. They are the owner, and you are the hirer. At the end of the agreement, the finance company passes ownership of the car to you, provided you have made all the repayments.
Example
A HP quote from Toyota Ireland on a car costing €22495 – over 5 years – the total payable would be €26969:
€372.38 per month over 60 months. (APR 9.5%)
Ending a Hire Purchase Agreement
At any stage you can return the car to the finance company and and pay 50% of the amount of the total hire purchase price (if the total of instalments you have already paid have not reached that amount).
You do not have to pay the 50% immediately. If you have not paid half the hire purchase price you can still return the car . However, you will still owe the difference between the payments you have made and half the hire purchase price. You will need to arrange to pay this debt. If the car is damaged in any way, you will also be liable to pay for any damage caused. The finance company may issue a notice of costs, but you should try and get your own estimate in such cases.
Owning the Car
Another option is to pay off the HP loan for the car earlier than planned. You can own the car by paying the difference between the amount already paid and the total hire purchase price. In such cases, there is usually a reduction on the overall amount due as the loan is being paid off earlier than planned. This reduction is calculated using a recognised formula for early loan repayments, however, the amount of any reduction is relatively small.
Repossession of a Hire Purchase Car
A car on HP can be repossessed under certain circumstances – such as missed payments.. If you have not yet paid off one-third of the total hire purchase cost, the owner can repossess the car without taking legal action.
However, if you have paid one-third or more off the total hire purchase cost, the owner cannot repossess the goods without taking legal proceedings.
Your car cannot be repossessed from your garage or driveway home, regardless of how much money you have paid back.
If your car is repossessed, the finance company will usually just sell the car and the money they get from the sale will go towards your debt but you will still have to make repayments until the entire original amout payable is paid off.
Insurance Write Off and HP
If a car bought on HP is written off – teh insurance company will pay the money to the HP company . THat will be put towards the outstanding debt but the purchaser will be liable for any amount still outstanding on the car.