Getting yourself a car nowadays is easier than ever before. In the past, you either needed to have the cash upfront or secure financing through a bank, which often came with stringent requirements. Now, there’s an upsurge of Saccos and other financing facilities, which has made it easy to own a car. In this article, we’ll explore what hire purchase is and what to consider when opting for this financing option.
What is a hire purchase plan?
This is a financing option that allows you to acquire a vehicle after making an initial payment, and you pay in regular installments while having the use of it. After completing all payments, then the car’s ownership is transferred to you. This way, it’s easier to own a car if at all you don’t have the full amount available upfront. Buying a car on hire purchase has its benefits and drawbacks and we aim to enlighten you on both perspectives so that you can consider them for your specific situation.
Benefits of Hire Purchase
- Immediate Ownership:
Hire purchase makes it possible for you to take your car home in a shorter time compared to other means of getting a car. However, you need to factor in extra costs such as insurance and tracker when buying the car because just putting down a deposit won’t allow you to drive away in your car immediately.
- Flexible Payment Plans:
Hire purchase agreements typically offer flexible payment options, allowing you to choose a plan that fits your budget. Both the monthly payments and the length of the agreement can be adjusted to meet your needs.
- No Extensive Credit Checks:
Unlike traditional bank loans, hire purchase agreements usually do not require extensive credit history checks, making it easier for individuals with limited credit access. However, it is advisable to have a good credit score as you never know how that might affect you in the future.
- Comprehensive Insurance Coverage:
Many dealers require comprehensive insurance as part of the agreement, ensuring that your vehicle is protected, as discussed in the extra costs you might incur after making your deposit.
- Fixed Interest.
With hire purchase agreements, interest is fixed for the duration of the agreement, so your repayment amount will never change. Many hire purchase agreements offer a lower rate of interest than other types of business finance, such as bank loans and overdrafts.
- Easy To Obtain
Hire purchase is usually a relatively simple form of business finance and typically quick and easy to obtain, in comparison to more traditional finance options.
- No Collateral Required
The car itself serves as collateral, so you don’t need other assets to secure the financing.
Drawbacks of Hire Purchase
- Higher Overall Cost:
With hire purchase terms, you may end up paying more than if you bought the vehicle outright due to interest charges.
- Ownership Transfer:
You do not own the vehicle until all payments are made, which means the lender retains ownership until then.
- Potential for Repossession:
If you fail to make payments on time, the lender has the right to repossess the vehicle.
- Limited Flexibility:
Some agreements may include restrictions on modifications or usage of the vehicle.
- Ongoing Fixed Payments
Committing to the payments for the full term of the contract over a longer time means that, if you experience any financial difficulties in the future and are unable to pay, the lender may seize the vehicle.
Conclusion
Overall, hire purchase has allowed many Kenyans to afford cars that would otherwise be beyond reach. However, before signing a contract, conduct sufficient research and fully grasp the conditions of the agreement. Also, be sure you can pay on time to avoid unnecessary pain and headaches.
If you’re thinking about going down this road, go to PigiaMe today and look at the various hire purchase automobiles available.
