What are the disadvantages of hire purchase?

What are the disadvantages of hire purchase?

When looking at hire purchase relative to PCP or PCH:

  1. You will be committed to a much higher monthly payment
  2. As you pay interest on the whole value of the car, hire purchase is not a good choice if you only plan to  keep the car for 2-3 years;Hire purchase is not a flexible option if you change your mind because there will be a sizeable termination fee.
  3. The VAT for the whole value of the car would normally be paid with the first instalment, but with PCP or PCH:
    • your VAT bill is spread across each month of your agreement;
    • you only pay VAT on the portion of the car that you use (e.g. if the car costs £10,000 and you decide to take a 3 year contract with PCP or PCH and that amounts to £6,000 across the 3 years then you only pay VAT on the £6,000 and save £800);

When looking at hire purchase relative to a personal loan, the main disadvantage is that you are not the owner of the car from the outset.

Related FAQs

What is personal contract hire (PCH)?

What is PCP or Personal Contract Purchase?

What is a personal loan?

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