How hire purchase works for a car in New Zealand

The short answer

Hire purchase, often called HP, is a way of buying a car in instalments. You pick the car, agree a price, a rate and a term, and take the car home on day one. You make regular payments. The lender holds a security interest in the car until you have paid the full amount, and when you make the final payment the car is yours outright.

In the Credit Contracts and Consumer Finance Act 2003, which most people shorten to the CCCFA, hire purchase is treated as a credit sale. That makes it a consumer credit contract, with the same core protections as a secured car loan. Those include the lender’s duty to check you can make the payments without significant financial hardship, and rules the lender must follow if it wants to repossess.

If you want the bigger picture of how finance is arranged, our page on how car finance works covers the whole path from application to settlement.

How hire purchase works, step by step

1. You choose a car. This can be from a dealer or, with some lenders, a private seller. Rules differ, so check with the lender first.
2. The lender assesses you. It asks about your income, spending, debts and credit history. A soft credit check is common at the start, and the lender makes a decision case by case.
3. You get a disclosure statement. It must set out the price, the amount borrowed, the interest rate, fees, the repayment amounts and the total cost. Read it at home, not at the counter.
4. You sign and take the car. The lender registers its security interest on the Personal Property Securities Register. Our PPSR guide explains what that means.
5. You make the repayments. These are usually weekly, fortnightly or monthly and are fixed for the term.
6. You make the final payment. The security interest comes off, and the car belongs to you without any lender’s claim on it.

If you miss payments along the way, the lender can ask you to put things right and, if you do not, can take the car back. We cover that further down.

Hire purchase compared with a secured car loan

People often ask which one is better. The honest answer is that they are close cousins, and the quality of the deal matters more than the label.

	Hire purchase	Secured car loan
What you do	Buy the car on credit	Borrow money, car is security
Who holds the interest	Lender, until paid off	Lender, until paid off
Covered by CCCFA	Yes, as a consumer credit contract	Yes
Can lender repossess	Usually, after missed payments, by process	Usually, after missed payments, by process
Typical use	Dealer finance	Bank, finance company or broker-arranged loans
What to compare	Rate, fees, total cost, early payout	Rate, fees, total cost, early payout

Community Law’s manual lists hire purchase, secured loans, overdrafts and credit cards among the things that can fall within the definition of a consumer credit contract, and it does not suggest one is treated better than another. Our secured vs unsecured guide goes deeper on the loan side.

For businesses the position can differ, because contracts taken out for business purposes sit outside the consumer rules. If that is you, look at the consumerprotection.govt.nz pages on how the CCCFA applies, and ask an accountant about tax. The Inland Revenue site, ird.govt.nz, has the official line on GST and depreciation.

What it costs: a worked example

The numbers below are illustrative only, picked to show the method. They are not a quote, and your own rate will depend on the lender’s assessment. Use the repayment calculator for your numbers.

Say you buy a $15,000 car on hire purchase with no deposit, at 14% a year over four years.

	Amount
Amount financed	$15,000
Rate (illustrative)	14% a year
Term	48 months
Monthly repayment (approx.)	$410
Total repaid (approx.)	$19,675
Interest and cost of credit (approx.)	$4,675

Now suppose the same car with a $2,000 deposit, so you finance $13,000 at the same rate. The monthly figure drops to roughly $355 and the interest to about $4,050. A deposit lowers the amount you borrow and the interest you pay on it, which is why lenders often like to see one. Our page on how much deposit you need covers that.

Set-up fees, if any, are separate. The disclosure statement lists them. Fees should relate to the lender’s actual costs, according to Consumer Protection, so ask what each one covers.

What lenders look at

Lenders make reasonable enquiries before lending. They want to be satisfied that the contract suits your needs and that you can make the payments without significant hardship. In practice they look at:

• your income, and how regular it is
• your living costs and other debts
• your credit file with Centrix, Equifax or Experian (formerly illion)
• the car’s age, price and condition, because it is the security
• any deposit or trade-in

If your credit file has marks on it, read our guide to low credit score car finance. Nobody can promise approval, and each lender decides for itself.

Your rights during the agreement

• Disclosure. You are entitled to a written disclosure statement with the real costs set out.
• Five working days to cancel. Consumer Protection says you can cancel within five working days, but you must still pay for the car if you have taken it home. Consumer NZ puts the window at seven working days if the notice was emailed and nine if it was posted. Check your paperwork.
• A say in add-ons. Insurance, extended warranties and repayment waivers must be suitable and affordable for you, and you should get the terms in writing. Our page on mechanical breakdown insurance explains why financing one can raise its cost.
• Fair treatment if you struggle. Contact the lender early. Options include a longer term, a payment holiday or interest-only payments for a while. Free budget advisers can help you set it up.

If you miss payments

Consumer Protection’s guide to car loans sets out the main steps for repossession:

• the contract must allow it, and you must have missed payments or otherwise breached it
• the lender must send a warning notice at least 15 days before taking the car
• after repossession, you can pay what is overdue, pay the full balance, or let the lender sell the car
• you can get an independent valuation and introduce a buyer
• the lender must send you the sale details within seven days of selling
• you may still owe a shortfall, but the lender should not add extra interest or penalties to it

Hardship help comes before any of that. Our guide on struggling to pay your car loan explains how to ask.

Red flags

• A salesperson who talks only about the weekly payment and will not show the rate and total cost.
• Pressure to sign on the day, or to skip the disclosure statement.
• Add-ons that were not discussed and appear in the contract.
• A “free” extra that is paid for somewhere in the loan.
• A guarantor being required without a clear explanation of what that means for them.
• A car with money already owing on it. Run a PPSR check.

If in doubt, Consumer Protection advises to leave the car at the lot and get independent advice. A Community Law Centre gives free initial advice.

How Fair Finance fits

Fair Finance is a referral service, not a lender, not a broker and not a financial adviser, so it does not give personal advice about which structure to choose. One application and one soft credit check go to a panel of approved New Zealand lenders. They decide case by case, and Fair Finance is paid by the lender only if a loan settles, which never changes your rate. The quick check is the place to start.

Checklist

• The disclosure statement is in hand and I have read it at home
• I know the interest rate, every fee and the total I will repay
• I know the monthly or weekly amount and the date it is due
• I have checked what an early payout would cost
• Any insurance or add-on is optional, suitable and in writing
• I have run a PPSR check on the car
• I know the cooling-off window and who to call for free advice

General information only, not financial or legal advice. Rules and rates change, so check the official pages below.

Sources

• Consumer Protection: Hire purchase and buying on credit
• Consumer Protection: Getting a loan for your car
• Community Law: Key terms and concepts, credit contracts and hire purchase
• Community Law: Lenders, their responsibilities to you
• Consumer NZ: Finance at car yards, what you need to know
• Inland Revenue: GST and taxes