Structure

A Hire Purchase (HP) agreement is one of the most common ways of funding a vehicle purchase.

It is normally a fixed cost, fixed period loan linked (or secured) to the purchase of a vehicle.

The agreement is a `Tri- Partite Transaction` (see Finance Structures module) and may be regulated, exempt or unregulated.

Click on the graphics on the right for more information:

Task	Hours per Day
Debtor (Customer)	130
Creditor (Lender)	131
Supplier (Dealer)	132

Debtor (Customer)

The debtor (customer) decides how much of an initial deposit to put down (unless pre- determined by the lender) and then pays off the amount borrowed (known as the balance) plus interest in instalments (normally monthly) over an agreed period of time.

HP agreements are typically for 2-3 years, but can last for up to 5 years.

At the end of this period, and once the Option to Purchase fee has been paid (and assuming everything else has been paid under the agreement), title to the vehicle is transferred to the customer who then becomes the legal owner.

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Creditor (Lender)

The creditor (finance company) retains title to the goods (legal ownership) until all the payments and the Option to Purchase fee is paid by the debtor (customer).

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Supplier (Dealer)

The facility is usually offered at the Point of Sale (dealer showroom) by the Sales Executive or Business Manager. The dealer supplies the vehicle to customer, but it is financed by the creditor/lender (see Finance Structures module).

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Debtor (Customer) Debtor (Customer)130

Creditor (Lender) Creditor (Lender)131

Supplier (Dealer) Supplier (Dealer)132