Hire purchase is a simple method of buying a vehicle on deferred payment terms, where you have the option to become the owner of the vehicle at the end of the agreement.

Typically, the hire purchase pattern will be one payment followed by 35 or 47 equal monthly payments starting one month after the commencement of the agreement. A deposit may also be required.

Unlike a lease or a personal contract purchase agreement, the residual value of the vehicle is not taken into account.

Instead your monthly payments on a hire purchase agreement are determined by the retail price of the vehicle, the size of the deposit and the length of the contract.

• Pros: greater buying power; vehicle appears on balance sheet; interest elements of the hire purchase fee can be offset against taxable profits.
• Cons: large deposit may be required; risk of high interest rates; and be aware of additional fees.