Hire purchase is a method of buying goods in which payment of purchase price is spread over a specific period of payment of an initial deposit followed by regular installments.
The deposit is called down payment.
Items that can be bought through hire purchases:
- Mobile devices
- Motor vehicles
- Industrial machinery
- You do not need large amounts of cash to buy an asset
- The seller is more willing to allow you to make small regular payments as the assets stay in his/her ownership until you have made all the repayments
- As the repayment amounts are fixed, it is easier to budget or manage your cash flow
- Higher purchase loans are handy for businesses who are buying assets that do not qualify for fixed assets loans
- You end up paying more for the asset than you would if you paid outright. On top of that, you would have to service the interest on the loan
- The seller can take back the asset if you fail to make a scheduled repayment. This is true even if you have already paid a substantial amount for the asset