What is an ‘Option to purchase’ fee?

We know car finance is awesome, because it’s a flexible and affordable way of getting to drive the car you want. That’s why we’re so keen on making it clear and simple for everyone, because nobody should miss out on a great deal for their new wheels, just because some of the car finance lingo is a bit confusing. 

With that in mind, you may have come across the phrase ‘option to purchase fee’ while sussing out your options - let’s take a look at what this means.

What is an option to purchase fee?

An option to purchase fee is a standard part of a Hire Purchase (HP) agreement. 

It’s an optional, fixed fee that you can pay at the end of the agreement, after all your monthly repayments are made. It’s typically between £100 and £300, but the amount depends on your lender. Here at Carmoola, our option to purchase fee is £1.

Once you’ve paid it, you become the legal owner of the car.

Why does the option to purchase fee exist?

The reason why option to purchase fees exist, is to transfer ownership of the car from the car finance company to you. 

Technically, while you’re making your monthly payments during the term of your car finance agreement, you’re the car’s registered keeper, and the lender is the legal owner. Once you’ve made all your payments, you can pay the option to purchase fee to officially become the car’s legal owner.

Why is it different depending on the lender?

Each lender will set their own option to purchase fee, depending on a few different factors. 

Before you enter into a car finance agreement, the lender should be able to tell you upfront how much any fees will be, including the option to purchase fee, so you’ll know what you’ll need to pay before you sign up to an agreement.

How is the option to purchase fee calculated?

The option to purchase fee is a flat fee, that isn’t tied to the size of your loan, or your interest rate. 

It’s designed to cover the legal and administrative costs of transferring the ownership of the car from the lender, over to you. The fee amount should be clear from the start of your agreement.