Hire Purchase Charges08/07/2020
A hire purchase also known as an installment plan, is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment (e.g., 40% of the total) and repays the balance of the price of the asset plus interest over a period of time. Other analogous practices are described as closed-end leasing or rent to own.
The hire purchase agreement was developed in the United Kingdom in the 19th century to allow customers with a cash shortage to make an expensive purchase they otherwise would have to delay or forgo. For example, in cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum) or return the goods to the owner.
If the buyer defaults in paying the installments, the owner may repossess the goods, a vendor protection not available with unsecured-consumer-credit systems. HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different balance sheet and taxation treatment of hire-purchased goods beneficial to their taxable income. The need for HP is reduced when consumers have collateral or other forms of credit readily available.
These contracts are most commonly used for items such as car and high-value electrical goods where the purchasers are unable to pay for the goods directly.
Limitation of hire-purchase charges
- “Cash price installment“, in relation to a hirer-purchase installment, means an amount which bears to the net cash price the same proportion as the amount of the hire-purchase installment bears to the total amount of hire-purchase price.
- “Deposit” means any sum payable by the hirer under the hire-purchase agreement by way of deposit or other initial payment or credited or to be credited to him under the agreement on account of any such deposit or payment whether that sum is to be or has been discharged by payment of money or by transfer or delivery of goods or by any other means.
- “Net cash price” in relation to goods comprised in a hire-purchase agreement, means the cash price of such goods as required to be specified in the hire-purchase agreement.
- “Net-hire-purchase charges” in relation to a hire-purchase agreement for any goods, means the different between the net hire-purchase price and the net cash price of such goods.
- “Net hire-purchase price” in relation to goods comprised in a hire-purchase agreement, means the total amount of hire-purchase price of such goods as required to be specified in the hire-purchase agreement.
- Any amount which in payable to cover the express of delivering the goods or any of the them to or the order of the hirer and which is specified in the agreement as included in the hire-purchase price.
- Any amount which is payable to cover registration or other fees under any law in respect of the goods or the agreement or both and which is specified in the agreements as included in the hire-purchase price.
- Any amount which is payable for insurance (other than third party insurance) in respect of the goods and which is specified in the agreement as included in the hire-purchase price.
- “Statutory charges” in relation to hire-purchase agreement, means the aggregate of the amounts calculated in accordance with the provisions of sub-section (2) as statutory charges in respect of each of the cash price installments corresponding to each of the hire-purchase installments under the agreement.