Hire purchase is an excellent option if you want your dream car or home right now. It’s also a wise means of acquiring office space for newly-found businesses. Instead of investing a huge part of your capital in your workspace, you can get it on a hire purchase plan with a small down payment.
However, getting approved for a hire purchase plan is not that easy. In this post, we’ll share the basics of a hire purchase plan along with how to get approved for one.
Let’s get started!
What is a hire purchase?
By definition, a hire purchase plan (HP plan) is a type of borrowing plan that’s a lot like interest-based installments on a loan. As per this borrowing plan, you can buy anything by paying a small down payment.
Usually, the down payment is 10 percent to 20 percent of the total cost of the borrowed item. Once you pay this amount, you can have that particular good (property, vehicles, or equipment) and use it. But you don’t legally own it.
Every month, you’ll have to pay a certain amount (some from the original cost of the good + the loan interest). And the lender will treat these payments as installments.
When you pay enough installments to cover the price of the item, you’ll get ownership of the item too.
So, how does a hire purchase differ from installments? Well, from the user’s perspective, the only difference between a hire purchase and an installment plan is the transfer of ownership.
With an installment plan, you get instant ownership of the item you want. But with a hire purchase plan, you do not get the ownership until you pay the complete amount.
And how does that affect you? You cannot sell or make any amendments to the borrowed item. For example, you cannot consider changing seats or repainting the exterior if it’s a vehicle. But this also means that you’re not responsible for maintenance and repair of the borrowed item (since you’re not its legal owner).
The first requirement to get approved for a hire purchase is to have a clean legal record. There should be no financial defaults or criminal record against you. Otherwise, you will not get qualified for the loan.
You’ll also need a few documents, including:
Proof of identity documents (passport, national identity card, driver’s license, or any other document specified by the lender)
Proof of income (bank details or bank statement)
Proof of employment (current employer’s letter and employment history)
In addition, you will have to share your personal details, including name, date of birth, address history, and the count of people under your care.
As mentioned earlier, you’ll also need to deposit a small amount as a down payment. So make sure your bank account has enough balance to cover for this down payment.
But keep in mind that some lenders may have specific requirements. They may ask for a specific document or contact your employer to double-check your reputation.
In any case, they’ll keep the process and requirements transparent with you. So, if you’re not comfortable sharing certain details, you can let the lender know.
Once you have all the basic requirements prepared, all you have to do is reach out to the lender and apply for a hire purchase. If you’ve provided all documents they’ve asked for and your legal profile is clear, there’s a high chance you’ll get approved for the loan.
Can you get a hire purchase loan with a bad credit score?
Yes! This is one of the best benefits of hire purchase plans. Unlike installment plans, you can get cars, houses, office space, or industrial equipment on a hire purchase plan even if you have a bad credit score.
That’s because the loan is secured against the borrowed item. If you fail to pay your monthly dues, the lender holds the right to seize the item.
In case you’ve paid less than one-third of the total amount, the lender will seize the property by themselves. But if you’ve paid more than one-third, they’ll need court orders to repossess the goods.
But there are ways to get your monthly dues reduced or paused. If you’re struggling to pay, you can request the lender to:
Stop charging interest for a certain time
Reduce the monthly amount
Readjust the repayment schedule
With that said, a good credit score can help you get lower interest rates on your hire purchase plan, flexible repayment schedules, and a high loan amount. So although you can use a hire purchase with a bad credit score, a good score always helps!
Hire purchase simplified
Hire purchase is a great way to get the items you need now and pay for them later. And although it comes with strict rules, know that you can always negotiate the terms and make it work for you.
Also, remember that a good credit score is not necessary to get a hire purchase plan, but it helps. So make sure to maintain a clean credit score and enjoy lower interest rates and flexible repayment plans on your hire purchase plan.
