Hire Purchase, buy now pay later loans, are increasingly popular

Hire purchase (HP) or buy now pay later loans are making a comeback and becoming increasingly popular as the credit crunch bites.

Hire Purchase or HP dropped out of favour during the credit boom as people turned to readily available loans and credit cards.

However, as the credit crunch has made lenders increasingly wary of providing finance, HP is seen by many as their best route to get credit.

Geraldine Kilkelly, Head of Research and Chief Economist at the Finance and Leasing Association (FLA), said ‘Overall, consumer finance is still being hit by the downturn. With a depressed housing market many people are choosing to improve their homes and replace furnishings rather than move house.’

She added ‘Retailers and lenders have been offering attractive interest-free credit and deferred payment deals on store instalment credit.’

Basically retailers are trying to generate business by offering their products, particularly furniture and electrical items, with zero per cent and pay now, pay later deals.

HP means the customer takes the goods there and then and, for an agreed period, each month repays a small amount.

Customers with these HP deals though need to ensure they understand when the repayments start and when the interest is applied.

They need to ensure that they can keep up with the repayments over the agreed period.

Critically customers do not own the goods until they have made all the repayments. This means the finance company has the right to take the goods back if all the repayments are not made.

HP in March was up nearly a quarter compared to a year ago.

Whilst hire purchase is on the rise, it is worth noting that secured loans have taken a significant drop, down 76% over the same period last year.

This is as a direct result of the lenders facing continued problems accessing funds to use to offer secured loans.