This archive report was first published on 14 September 2019.
Published on September 14, 2019, hire purchase is a financing arrangement that allows consumers to buy expensive goods by making an initial down payment and paying the balance plus interest in instalments.
Under a hire purchase agreement, the buyer does not officially own the goods until all payments have been made. If the buyer fails to make a payment, the seller can repossess the goods.
Hire purchase is commonly used for durable consumer articles such as sewing machines, televisions, and refrigerators.
Advantages ¶
One of the key benefits of hire purchase is that it allows buyers to acquire goods without having to pay the full amount upfront. This can be especially helpful for small traders who can purchase machinery and equipment on an installment basis and then sell it to customers at full price.
Additionally, hire purchase agreements often attract interest, which can increase profits for the seller. This can lead to increased sales volume and higher profits.
However, it's worth noting that hire purchase agreements can also have some drawbacks.
Disadvantages ¶
One of the main disadvantages of hire purchase is that it can result in a higher final cost for the buyer. This is because the interest rates on hire purchase agreements can add up over time, making the total cost of the goods higher than if they were purchased outright.
Another potential drawback is that hire purchase agreements may not offer the same level of discounts as other types of financing arrangements. This is because hire purchase agreements involve more risk for the seller, as the buyer may fail to make payments.
Finally, hire purchase agreements can sometimes lead to artificial demand, as buyers may be tempted to purchase goods they don't need or can't afford.
