As a professional, I can explain what a contract purchase is and how it works. A contract purchase is a type of financing option that allows you to buy a new or used car without having to pay the full purchase price upfront. It is also known as a hire purchase or lease purchase.
In a contract purchase, you make a down payment and then pay in monthly installments over a fixed period, typically two to five years. At the end of the contract, you have three options:
1. Purchase the car outright by paying the remaining balance, also known as the “balloon payment.”
2. Return the car to the dealer and walk away.
3. Trade in the car for a new one and start a new contract purchase.
The monthly payments are based on the initial purchase price, the length of the contract, and the interest rate. The interest rate is usually higher for contract purchases than for traditional car loans since the lender takes on more risk.
Contract purchases have some advantages over other forms of financing. They allow you to drive a new or used car without having to pay the full purchase price upfront. Also, the monthly payments are typically lower than those for a conventional car loan, which means you can afford to buy a more expensive car.
However, there are some downsides to contract purchases. The interest rates are higher, which means you’ll end up paying more in interest over the life of the contract. Also, you don’t own the car until you’ve made the final payment, so you can’t sell it without the lender’s permission.
In conclusion, a contract purchase is a financing option to buy a car where you make monthly payments over a fixed period, with the option to purchase the car, return it, or trade it in at the end of the contract. Although it has some advantages, it’s important to understand the terms and conditions before signing a contract.