Finding the best ways to borrow Hire purchase and interest-free credit

Car and money

Hire purchase can be an easy way to pay for a car, but there are drawbacks

Hire purchase

Hire purchase is a form of finance usually arranged directly through the retailer selling you goods. It is commonly used for car finance.

Under a hire purchase agreement for a car, you usually pay an initial deposit, normally at least 10% of the car's price. Then you pay the remainder, with interest, in monthly instalments. There's usually an administration fee to pay with the first payment and an 'option to purchase' fee with the final one.

The main drawback of hire purchase is that you don't own the item until the end of the contract – so in the case of buying a car, you can't sell or modify the vehicle without the lender's permission.

For more information on the best way to pay for a car, read the Which? guide Car finance explained.

In-store interest-free credit

In-store 0% credit deals can be a good way to spread the cost of big purchases, so long as you follow a few basic rules:

  • Not all stores offer credit at 0%, so make sure you check. Just because the poster says 'buy now, pay later', doesn't mean the deal is interest-free. Brighthouse, for example, offers in-store credit, but at 29.9% APR.
  • Don't spread the cost of credit over a longer period than you expect to keep the item. For example, if you buy a new sofa every two years, you shouldn't spread the credit over more than 24 months. Otherwise you'll still be paying for something you're no longer getting the benefit of.
  • Make sure you set up a direct debit for the monthly payment. If you break the contract by missing a payment, you may have to pay interest and penalty charges.
  • As with all credit, don't overstretch yourself. Just because you're borrowing through a retailer rather than a bank, it's still debt that has to be repaid.

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