Published on June 8, 2021

A guide to hire purchase

Hire Purchase SingaporeNew Car Finance

Most of us have heard dealers and credit companies mention hire purchase as the ideal alternative to finance your new car, but what exactly is it? In this article, we share more about what a hire purchase is, and how it works in Singapore.

What is a hire purchase?

Hire purchase is a payment arrangement, usually used in the automobile industry, allowing the buyer to purchase a vehicle without having to pay the full cost beforehand. You will still need to make a down payment, however, the balance and interest can be paid in instalments. The main advantage of this scheme is that it allows you to spread out the cost, giving you more financial freedom.

How does this work?

Similar to an instalment plan, you are required to pay monthly instalments over a period of a few years with a fixed interest rate. But this is where it differs from buying a vehicle on credit. Buying through a hire purchase scheme may give you the benefits of using the asset before making a full payment, however, you do not have the ownership rights until full payment inclusive of interest has been paid. 

Hire purchase is commonly used for paying expensive items, and in Singapore’s context, it is a common finance scheme for new and used vehicles. 

With the high costs that come with vehicle ownership in Singapore, any individual is eligible to take on a hire purchase agreement. Hire purchase agreements are often seen amongst ride-hailing as well as food delivery companies. So if you are interested in doing food delivery or looking to join a ride-hailing company, but do not have your own vehicle, an option for you would be to get one through hire purchase from a trusted vehicle finance company in Singapore

Vehicle Finance Company
Vehicle Finance Company

Hire purchase schemes are also available for businesses, especially those that require a fleet of vehicles to support their business operations. One of the biggest benefits of hire purchase schemes for businesses is that they do not have to dip into their working capital, to finance their fleet. In addition, hire purchase can also help to free up their cash flow for other uses such as payroll, training, and other urgent expenses.

Cons of hire purchase

As the hire purchase is secured against your vehicle, the lender, be it a bank or vehicle finance company, has the right to seize it in the event of a payment default. While buying a vehicle through hire purchase gives you more financial freedom, the total cost that you have to pay may be higher in the long run as a result of the interest rates. Furthermore, the total cost to be paid is also dependent on the length of your hire purchase tenure. For instance, a longer tenure can give you smaller and more affordable monthly payments, however, it also means that a higher interest rate has to be paid for a longer period.

What happens if you do not make the full repayment?

Aside from having your vehicle repossessed, there are also other implications for failing to make the full repayment: 

What Happens if Full Repayment Is Not Made
What Happens if Full Repayment Is Not Made
  1. Not only will you not be able to get the sums already paid in instalments, some banks or credit companies may even require you to pay a termination fee. 

  2. As you have defaulted on your payment, you will have a lower credit score, affecting your chances of taking up crucial loans for housing. 

  3. Should the credit company or bank believe that you have the means to repay the loan, they can take legal action against you.

Difference between hire purchase and leasing

Contrary to the belief that hire purchase is a subset of leasing, they have two different meanings. Unlike hire purchase which is a form of payment arrangement to own a vehicle, leasing refers to an arrangement that allows the use of the vehicle over a period of time. 


In terms of ownership, the vehicle ownership rights belong to the leasing company regardless of whether the full payment has been made. The vehicle also has to be returned to the leasing company at the end of the lease. Under hire purchase, the ownership of the vehicle will be transferred to the buyer once all instalments are paid. 


Another difference between hire purchase and leasing is that the leasing company bears all maintenance costs. However, under a hire purchase agreement, these costs have to be borne by the buyer himself. 


If you need funds to purchase a vehicle, whether it is for business or personal use, getting a hire purchase is not as difficult as it seems. It is recommended to always do thorough research on the terms and conditions of hire purchase, as well as the interest rates that are being offered. 

Reach out to Swee Seng Credit, a reliable finance solution company in Singapore, if you need funds to purchase a vehicle. Offering hassle-free applications and competitive interest rates, Swee Seng Credit has all the car finance schemes to fund your purchase.