Are you thinking about purchasing on a hire purchase agreement? Are you worried about your credit score? As with any financial decision, it is essential to invest effort and time and identify out what is right for yourself.
How do hire purchase agreements work?
A hire purchase agreement is a purchase deal that allows a buyer to acquire items without having to pay the full cost upfront. In a hire purchase agreement, a buyer only pays a deposit to acquire assets. This is usually between 10% and 15% of the total cost. Once the buyer makes the down payment, they acquire the assets and they can utilize them. However, during this period, the buyer is only hiring the items and is referred to as the hirer. The seller retains ownership title until the hirer makes full payment for the assets.
What Is the Role of Credit Score in Hire Purchase Agreements?
Credit checks play a part in hire purchase transactions. A hire purchase dealer relies on your credit rating to determine whether you are eligible for a hire purchase deal. A credit rating provides the dealer insight into the creditworthiness of the hirer. Here are some reasons why dealers rely on the credit score.
1. Mitigating risks
The primary reason the dealer will check your credit score is to mitigate risk. The credit trader tries to understand whether the hirer has a history of defaulting payments. Dealers that do not check credit scores risk not receiving payments from the hirer.
2. Ensuring affordability
By checking your credit score, the dealer can determine whether you can afford the hire purchase agreement. Your income and expenses provide the dealer an insight on whether you have sufficient income to make payments.
3. Protecting you as a buyer
A hire purchase deal can be exciting for any buyer. If the dealer approves applications without credit checks, it is possible for a buyer to sign a hire purchase agreement that is not conducive or affordable. Missed payments, late payments, and defaulting not only damage your credit score, but they can also cause the dealer to repossess the items.
Can I Get a Hire Purchase Agreement with A Bad Credit Rating?
Buyers with bad credit ratings can be eligible for hire purchase agreements. However, it is likely that you will pay higher interest for the assets. However, in some cases, dealers will not approve your agreement due to poor credit rating.
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