What is rental purchase?
Hire purchase is a form of credit where you rent a durable good for a certain (multi-year) period. When this period ends and you have paid everything in full, you have become the owner of the property. This form of credit has several advantages and disadvantages compared to leasing or buying on installment. Hire purchase is often used when selling cars.
Disadvantages hire purchase
If you buy something on a rental purchase, you will only be the owner of the property once the rental period has ended and everything has been paid for. If you remain in default until 75% of the loan has been repaid, the guarantor can confiscate the property. You will then lose the down payments. Although the guarantor remains the owner of the property and could therefore charge a lower interest rate than the bank, this often does not happen in practice. It is usually cheaper to take out a revolving credit or personal loan with the bank yourself. A deposit is sometimes requested. A final disadvantage is that the maintenance of the hire-purchase car is for own account.
Buying a new car is a big investment. Because you rent it well, you don’t have to have a large reserve yourself. The property can be taken away and used immediately. If the repayments can no longer be paid, the guarantor can only seize the rented property. At mail order companies and at the bank, you are the direct owner of a good, but in the event of non-payment, you can seize your wages, benefits, home and household effects.
Hire purchase car with banker
If you buy a new or second-hand car from a car dealer, this will often be on a hire-purchase basis. For the car dealer, hire purchase is a better choice than if you arrange the financing yourself at the bank. With a hire purchase you only become the owner of the car once all the money has been paid. If you pay less than 75%, the car dealer can reclaim the car. Although many car cases will require proof of income, there are enough car dealers who will also offer a car if you have a negative banker. You usually have to pay a part of the car or trade in your old car.
There are some major differences between lease and lease purchase. Most renters of a car opt for an operational lease. You will not become the owner of the property; you rent the car alone. Furthermore, you do not have to worry about things like car insurance, maintenance and damage. These costs will of course be calculated in the monthly lease amount. Another advantage of an operational lease is that you can choose a new car model after a few years. If the lease period is over, the lease company can issue a lease statement. With this lease statement, a new insurance company can calculate your claim-free years. Self-employed persons with business experience can apply for a financial lease.