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Rent buy

What is hire purchase?

Hire purchase is a form of credit where the loan amount is always tied to a fixed object, such as a car. A special feature of hire purchase is that the buyer of the object only becomes the official owner of the object after payment of the last installment. Because of the increased certainty that the lender has on repayment of the loan, sharper rates often apply to hire purchase than to other forms. With hire purchase, the term, interest and repayments are determined in advance.

Main Features of Hire Purchase

We have listed the most important properties of hire purchase below:
  • the loan is always tied to a fixed object;
  • ownership of the object is only transferred after payment of the last installment;
  • there is a fixed monthly interest and repayment, the monthly amount is fixed;
  • the term is fixed;
  • you often cannot pay off extra amounts without penalty;
  • there is often a very competitive interest rate in connection with the link between the loan and the collateral;
  • sometimes a term life insurance is included in the loan.

Rates for hire purchase

Because hire purchase is often linked to a specific product, we cannot compare hire purchase interest rates. Generally speaking, hire purchase has a fixed interest rate. This interest is of course primarily dependent on the market interest rate. This is the interest that the lender has to pay on his money (ie the purchase price for the lender). The higher this market interest rate, the higher the interest on the revolving credit. In addition to the market interest rate, however, there are a large number of factors that can determine the level of the interest. We have listed the most important ones below.

Collateral

Since in hire purchase, the loan is inextricably linked to collateral, the value of the collateral is an important factor.

Amount of the loan

Often the interest rate is lower with a higher loan.

Personal risk profile

The lender often creates a risk profile for each applicant. This takes into account your age, income situation, credit history, outstanding loans, etc. The lower the risk, the sharper the rate.

Additional insurance

Sometimes insurance is included in a hire-purchase agreement. For example, the construction is often used that the loan expires if the borrower (the person who has borrowed the money) dies during the term of the loan. In that case, a term life insurance is attached to the loan. Of course you often pay a slightly higher interest rate for such insurance.

The above factors show that not everyone is eligible for the same interest rate! In fact, there can easily be a 5% difference between the lowest rate that is offered and the highest rate! Moreover, not all companies deal with the above variables in the same way. Before you take out a loan, it is therefore very wise to make an extensive comparison between the different providers.

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