Buying a car on hire purchase

Buying a car on hire purchase

Hire purchase is a way to finance a car that you will be using for business purposes. The lender buys the vehicle, and you hire it for a specific period.

Hire purchase is different from other forms of vehicle financing, such as a car loan, because the financier will buy the car you want to use. The financier will then hire out the car to you, often through regular instalments. 

Business owners may prefer to hire purchase cars as they get to use the vehicle without taking out a large loan to purchase it. The title of the vehicle is transferred to you after you have completed the payments. 

Companies, partnerships, sole traders and individuals can opt for hire purchase cars in Australia, but it is mandatory that the vehicle must be used for business or to generate income.

How does a car hire purchase work?

When you opt to hire purchase a car, you enter into an agreement with the financiar to pay installments over time and the ownership of the car is transferred to you at the end of this period. The typical period over which you can spread the cost of the vehicle ranges between one to five years and you’ll also pay interest on top of the purchase price. 

Repayments are usually made monthly but you could check if your financier allows weekly or fortnightly payments. You could even opt to pay a larger amount at the end of the term, also called a balloon payment, to reduce the size of your regular repayments during the term. However, make sure to check the interest rate, as some lenders might charge you extra for availing of this option.

Finding business car hire purchase deals

Financial institutions and some car dealerships may offer the hire purchase option. However, before you hire purchase a car, it's important to make sure you're getting the right deal for your financial needs and situation. The best hire purchase interest rate will be one that suits your goals and budget. Ensure you've done your research and compared a range of options before signing on the dotted line 

You should also consider checking the other options available to you, such as leasing a car, if you only need the car for a fixed period of time.

What are the benefits of hire purchase car financing?

The main advantage of buying a car on hire purchase is that you get the flexibility to structure payments according to what’s convenient for you and you don’t have to stump up the cash for a car. You can use the vehicle that your business needs without locking up your own funds. 

Interest rates can be fixed so that you can estimate your total costs accurately. If you want to cancel the agreement, you can return the car to the financier. You will need to pay for the duration that you used the vehicle. 

If you hire purchase a car, you might be able to claim your hire purchase repayments as a tax-deductible operating expense. Check with your accountant to find out about the deductions you could claim.

Am I eligible for hire purchase in Australia?

You can apply for a hire purchase in Australia if you are qualified to work in Australia and over 18 years of age. Individuals or businesses can apply, but the vehicle must be used for business purposes. 

Many lenders will want to see that you have had a trading business for at least 12 months. A good credit score, without any history of bankruptcy, will help your application.


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Product database updated 22 Oct, 2023

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.