Buying An Electric Car: What Is Hire Purchase?

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For drivers who are looking to spread the purchase cost of an electric vehicle across fixed monthly payments, hire purchase could be one of the best options. The entire cost of the electric car is split over an agreed period, often three to five years, and the repayments plus interest are divided into fixed monthly instalments. 

The reason hire purchase is a popular option for EVs, is because at the end of the agreement the eco-friendly car is yours to keep. If your circumstances change during the contract, there is also the option to pay off the remaining balance early.

Hire Purchase Could Be The Ideal EV Financing Method If You Are Looking For: 

  • A finance product which is available to a variety of credit profiles.
  • The ability to budget easily with fixed monthly payments.
  • An agreement with no mileage limits if you drive above-average miles.
  • A car which you’ll keep for longer than the agreement length.

So, How Does Hire Purchase Work? 

Let’s imagine that you want to purchase a used all-electric Nissan Leaf. It’s worth £12,800 and you choose a four-year agreement, with an APR of 10.9%. After putting down a £500 deposit, the amount of credit required is £12,300. The amount borrowed and the interest is divided into 48 monthly payments of £314.27. This means the total amount you’ll pay back over the four years is £15,698. When you’ve made the last payment, the car is now yours to keep.

One of the main differences between hire purchase and personal contract purchase (PCP) is that you own the car at the end in a hire purchase. Unlike PCP, there is no balloon payment to pay or refinance and if you’re driving above-average miles, then having no-mileage limits could be more cost-effective.

For drivers with a less-than-perfect credit history, hire purchase can be one of the best options as it has the highest approval rate of all car finance options.

Brokers typically work with a large panel of lenders who are able to help you find the best deal, even if you have been refused car finance elsewhere.

When comparing your options, it’s worth noting that hire purchase will usually always have higher monthly payments than personal contract purchase or leasing. This is because you are making repayments on the entire vehicle and will own the car at the end. Other finance products require you to pay balloon payments at the end of the agreement to own the car, or simply return it to the lender. So, if you’re looking for a straight-forward method to finance an electric car which you’re looking to keep for longer than the term length, then hire purchase could be the best option. If you’re more likely to want to upgrade your car every few years, then PCP or car leasing might be more worthwhile.

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Ashvin Suri

Ashvin has been involved with the renewables, energy efficiency and infrastructure sectors since 2006. He is passionate about the transition to a low-carbon economy and electric transportation. Ashvin commenced his career in 1994, working with US investment banks in New York. Post his MBA from the London Business School (1996-1998), he continued to work in investment banking at Flemings (London) and JPMorgan (London). His roles included corporate finance advisory, M&A and capital raising. He has been involved across diverse industry sectors, to include engineering, aerospace, oil & gas, airports and automotive across Asia and Europe. In 2010, he co-founded a solar development platform, for large scale ground and roof solar projects to include the UK, Italy, Germany and France. He has also advised on various renewable energy (wind and solar) utility scale projects working with global institutional investors and independent power producers (IPP’s) in the renewable energy sector. He has also advised in key international markets like India, to include advising the TVS Group, a multi-billion dollar industrial and automotive group in India. Ashvin has also advised Indian Energy, an IPP backed by Guggenheim (a US$ 165 billion fund). He has also advised AMIH, a US$ 2 billion, Singapore based group. Ashvin has also worked in the real estate and infrastructure sector, to including working with the Matrix Group (a US$ 4 billion property group in the UK) to launch one of the first few institutional real estate funds for the Indian real estate market. The fund was successfully launched with significant institutional support from the UK/ European markets. He has also advised on water infrastructure, to include advising a Swedish clean technology company in the water sector. He is also a member of the Forbury Investment Network advisory committee. He has also been involved with a number of early stage ventures.

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