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Overdraft, loan or HP for purchase of vehicle?

hztmhztm Feels At HomeRegistered Posts: 50
Hi, I am just revising for the Unit 15 skills test and am a little confused about one of the questions - What would be best for purchasing a new car - overdraft, long term loan or hire purchase agreement. I think the answer would be hire purchase but I am struggling to describe all the reasons why. Really appreciate any assistance - thank you so much.

Comments

  • RinskeRinske Font Of All Knowledge Registered Posts: 2,453
    hztm wrote: »
    Hi, I am just revising for the Unit 15 skills test and am a little confused about one of the questions - What would be best for purchasing a new car - overdraft, long term loan or hire purchase agreement. I think the answer would be hire purchase but I am struggling to describe all the reasons why. Really appreciate any assistance - thank you so much.
    Think about the different options and what they offer and base your answer on that.

    Now correct me if I'm wrong, but if I remember correct the following would apply:

    The overdraft is usually used short term mainly, the amount is very variable and can be repaid at any given time. The interest is slightly higher then for a normal loan.
    The loan is for a fixed period, usually for a fixed amount which is agreed in advance and the security is the assets of a company. A loan is usually quite cheap, especially if agreed with a bank.
    The hire purchase agreement is for a fixed period, for fixed amounts, agreed in advance and the security is the car. The costs depend on the finance company.

    Based on that the loan and the hire purchase agreement are both valid options and depending on conditions offered one might be cheaper then the other.

    The other thing you want to consider here is that with a loan the car is owned by the company from the start, while with the lease the ownership transfers once the lease period is over.

    Does that help at all?
  • hztmhztm Feels At Home Registered Posts: 50
    Thanks Rinske - I have a question in a mock skills test that seems to be asking for a specific answer but does not provide any further information to allow a specific decision to be made. I guess I just have to explain as much as possible about the options and hope this is ok. This is my first skills test so I am still trying to get to grips with exactly what is required. Thanks again - this is really helpful.
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