Hire Purchase

• Is a method of buying consumer durables such as Television sets on credit.

Characteristics

• A written agreement between the buyer and seller is required.
• A deposit is paid followed by installments (usually on a monthly basis).
• Suitable for selling durable goods or goods with a second hand value.
• It is governed by the Hire Purchase Act.
• The buyer can cancel the agreement and return the goods when at least half of the purchase price has been paid.
• The seller can repossess the goods if the buyer defaults.
• A court order is needed to repossess the goods in the event that the buyer defaults on payment after paying at least a third of the purchase price.
• The buyer takes possession of the goods after paying the deposit.
• The buyer becomes the rightful owner upon paying the last installment.
• Finance charges are usually added to the purchase price.
• The seller insures the goods during the Hire Purchase period.
• A long repayment period e.g. 6-24 months.
• Financed by a financing house.
• The buyer cannot sell the goods during this period.

Importance of finance companies in Hire Purchase Transactions

• Provide capital to traders.
• The buyer is indebted to the Finance House.
• The trader collects installments from debt behalf of finance company.
• Relieves the trader of all risks arising from bad debts and any legal responsibility.
• Makes profit by charging interest.

To view the advantages and disadvantages of Hire Purchase to the buyer go to this page.

To view the advantages and disadvantages of Hire Purchase to the seller go to this page.

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