Hire purchase (HP) means that you are hiring (renting) a product until you have fully paid for it in instalments over a period of time. The customer gets to take away the item but full legal ownership only passes to them when it is fully paid for. HP is a common way of paying for high-value purchases such as cars and other expensive items.
All hire purchase agreements involve three parties: 1. The buyer of the goods. 2. The seller of the goods. 3. A finance company or a bank.
Example: Frank saw an advertisement from AJAX Financial Services promoting hire purchase finance for a new car. According to the ad, a car costing €20,000 could be purchased using a deposit of only €100 and just 36 monthly repayments of €660 per month.
Customer pays €660 to
HP company every month for 36 months.
HP Finance Company
HP company pays €20,000 for car
Buyer
Seller supplies car to customer
Seller
With hire purchase, the seller sells the goods to the customer (the hirer). The seller is paid in full by the finance company. The finance company then collects the purchase price plus interest from the customer (hirer).
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Name and address of the buyer. Name and address of the seller. Cash price of the goods. Full hire purchase price of the goods.
All hire purchase agreements must show: °
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Deposit (if any) that must be paid.
Number of payments to be made. Amount of each payment to be made.
APR being charged.
Evaluation of hire purchase Amount: It can be used to purchase high value items such as cars. Cost: The rate of interest in hire purchase agreements tends to be relatively high. Risk: The hirer does not own the goods until the final payment is made to the finance company. The hire purchase company can repossess the goods if the repayments are not made on time.
