Contract purchase vs Hire purchase

Explain the Difference between Contract purchase vs Hire purchase?

15/09/2021Business , Finance

In the United Kingdom, contract purchase and hire purchase are the two most famous approaches for purchasing a car on finance. Some differences need to be considered when purchasing a vehicle on these types of car financing. So, we will look at the differences between contract purchase vs hire purchase.

Many UK drivers take advantage of car finance while purchasing a car, and these two ways are well known for it. Before you get into car financing, you need to consider a lot of things. If you’re looking for a significant source to know about car financing, then you just have found the right post.


Our accountants at CruseBurke will provide you with comprehensive advice on car financing. If you are concerned, then let us know!


What is Hire Purchase (HP) Finance?

Hire purchase (HP) is a car financing that allows drivers to acquire new or used vehicles. In this, you make a deposit and then pay the remaining money for the car, plus interest in monthly payments. The loan provided against your car value is secured.

So, at the end of the agreement, you would possess the car after repaying all the installments, and paying the “option to purchase fee”. There are some advantages and drawbacks of HP finance.

Advantages and Disadvantages of HP Finance


What is Contract Purchase Finance?

It is a popular way of purchasing a car. The buyer pays an installment here as well, but not against the car’s total price; instead, they anticipate the car’s depreciation. At the end of the contract, you have the choice to return the car, exchange it for a new car, or make balloon payments (final payments) to possess the car.

Following are the advantages and disadvantages of CP finance.

Advantages and Disadvantages of CP Finance

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What is the Difference between Contract purchase vs Hire purchase?

The differences between contract purchase vs hire purchase are as follows:

The first notable difference between these two financial systems is that each has a different monthly repayment amount. As it varies depending on the car model and the amount borrowed.

In hire purchase, the monthly payments equal the car’s worth plus interest throughout the contract (12 to 60 months). The borrower gets his vehicle after making all of his installments.

In general, the payments of a Personal contract are less than those of a Hire purchase. To determine GMFV (Guaranteed Minimum Future Value), a lender will estimate the car’s value when the contract expires. The payments will include the difference between this and the car’s initial value.

At the end of the contract period, the borrower can purchase the car by making final payments (balloon payment). GMFV is usually used to calculate this final payment.


Quick Sum Up

We hope you understand the differences between contract purchase vs hire purchase. The highlighted details will assist you in finding out your car according to your financial situation. You can pay the cost of your car in installments rather than paying the whole amount in a single payment.


Still, confused? Let us help you regarding this topic!


Disclaimer: This blog provides basic information about the difference between contract purchase and hire purchase.

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