ZIMSEC O Level Commerce Notes: Hire Purchase
- Is a method of buying consumer durables such as Television sets on credit.
- 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.
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