Hire Purchase Agreement or Personal Loan?
Interest-Free Credit Means Reduced Monthly Repayments
Apr 22, 2009
Personal loans can be taken out on either a secured or unsecured basis. The most common form of collateral provided in relation to any form of borrowing is property. A hire purchase agreement is also a form of secured loan as the item purchased provides the necessary collateral in the event of the borrower defaulting. Should a consumer default on a hire purchase agreement, the white goods or car purchased can also be repossessed.
A Personal Loan Allows Multiple Purchases
Personal loans provide a consumer with greater personal freedom. A consumer can pay for a new car, perform home improvements and pay for a luxury holiday with the same loan. The benefits of keeping finances simply through a single monthly repayment shouldn't be under-estimated. An individual hire purchase agreement, as well as a fresh credit check, is necessary for every purchase.
Hire Purchase Agreements are More Likely to be Approved
Due to the provision of collateral, consumers with a bad credit rating are more likely to be approved for a hire purchase agreement than an unsecured personal loan. This is because creditors have repossession rights should a borrower default on the agreement. For example, consumers that have repaid less than a third of an items value can face having the item 'snatched back'.
Do Personal Loans or Hire Purchase Agreements Offer Lower Monthly Repayments?
Consumers with a bad credit rating are charged a more attractive rate of interest on a hire purchase agreement. Personal loan provide the lender with little protection, thus monthly repayments tend to be higher for those with a history of missed or late payments.
Interest-Free Credit on Hire Purchase Agreements
A best buy personal loan will minimise monthly repayments, but interest will still accrue. Consumers that haven't incurred a bad credit rating as a result of missed and late payments may be able to purchase a new car or white goods (washing machines, computers etc) on interest-free credit.
For example, Mr & Mrs Smith want to buy a new car. A £5,000 best buy personal loan at 7.4% APR over 3 years will mean that £5,571 is paid over the course of the loan. However, a £5,000 hire purchase agreement to buy the exact same car on interest-free credit accrues no interest. Monthly repayments are also £15.86 less.
Consumers seeking to minimise monthly repayments should actively seek interest-free credit on hire purchase agreements. Personal loans are often preferred for making multiple purchases as this simplifies family finances. Try to avoid impulse buying purely because credit is available.
