Category Archives for "Hire Purchase"

Hire Purchase Melbourne: Definition, Perks and Disadvantages

What You Need to Know About Hire Purchase

Also known as corporate hire purchase or commercial hire purchase, hire purchase refers to an arrangement whereby customers agree to a contract so as to acquire assets by settling an initial installment and repaying the balance of the price of the assets plus interest over an agreed period of time. It’s a credit agreement that is used to buy motorhomes, caravans, cars, motorcycles as well as other financial assets.

Basically, before considering any finance firm offering hire purchase terms, it is essential you perform a little bit of fact- finding. Be assured that experimentation will assist you be able to distinguish between a legitimate finance company from a fake one. Courtesy of research, you will be in a position also to secure reliable finance companies that will not only assure you with very satisfactory terms of service but affordable quotes as well.

Businesses Suited to Getting Hire Purchase

The system is considered appropriate to be used by small traders and manufacturers. This is because they can buy machinery and other facilities on installment basis and eventually sell to buyer(s) charging full price.

With hire purchase, the sellers get the installments that include initial price and interest. Interest is usually calculated in advance and computed in the total installments to be settled by the buyer.

Pros of Hire Purchase

#1: Convenience in Payment

The buyer is often the great beneficiary since he or she is offered the opportunity of making payments in installments. Hire purchase is normally considered advantageous to individuals who have limited income.

#2: Leads to an Increase in Volume of Sales

Hire purchase often attracts more consumers due to the assurance that they will make payments in uncomplicated installments. This is the reason why such a system of payment can lead to an increase in volume of sales.

#3: Increased Profits

Courtesy of hire purchase, a seller will experience an increase in volume of sales. This will lead to increased profit to his or her business.

#4: Encourages Saving

The system encourages providence among buyers who are usually forced to save a portion of their income so that they can pay a portion of the installment. This infuses the habit of saving among the people.

#5: Lesser Risk

From the seller’s point of view, the system is of great importance as he or she knows that incase the buyer defaults any of the installments, he / she can regain full ownership of the product.

Cons of Hire Purchase

#1: Higher Price

Buyers considering higher purchase terms will have to pay higher prices for the products purchased, which include cost plus interest.

#2: Recovery of Installments can be Difficult

Sellers in most cases do not often get the installments from buyers on time. This means that they can be forced to incur their money trying to recover the installments. This in the long run can lead to serious conflict between the sellers and buyers.

#3: Heavy Risk

Despite the fact that the seller has the right to repossess back the goods from defaulting consumers, he or she runs a heavy risk under hire purchase system. This is because the products he/she will take will be considered second hand and will fetch little price.

#4: Creates Artificial Desire for Products

The system creates artificial want for items. The buyer is tempted to buy a product even if he or she does not afford or need to purchase it.

Costs to Be Considered

With hire purchase, there are two vital costs that require to be considered i.e.

  • Interest Rate Imposed for Financing

Rates are usually favorable to products with higher resale value like vehicles and agricultural equipment. Assets with low resale value such as vending machines and printers are offered less favorable rates.

  • Fee Charged By the Financing Company

Fee is charged for administrative work done on your request and for loan processing procedure.

The Essential Ingredient of Hire Purchase

The buyer will only become the owner of the item only after full and/or final payment of all installments is done. Until then, the buyer is considered to be hiring the product and every installment will be considered as hiring charges paid by him/her.

Bottom Line

Since the merits associated wit hire purchase outweigh the demerits, consider this system of payment the next time you’re buying item(s) so that you can experience the merits associated with it.