Hire purchase remains one of the best ways to purchase household items in modern times. There are plenty of benefits that hire purchase offers in comparison with other financing options. In Kenya, hire purchase is also referred to as lipa mdogo mdogo or lipa pole pole.

What Is Hire Purchase?

A hire purchase agreement is designed to help buyers acquire household items without all the cash. This agreement requires a buyer to only pay as little as 10% of the cost of the items. After paying the deposit the buyer pays the balance in the form of periodic payments known as installments. There is interest charged on installments and this makes the total cost of the household goods higher than in the case of cash purchases.

Differences between hire purchase and cash purchase

There are differences between purchasing in cash and signing a hire purchase agreement. Every option has benefits as well as downsides. Here is the comparison.

Cost and Convenience of Hire Purchase

·         Cost

Cost is one of the biggest differences between a cash purchase and a hire purchase arrangement. The total cost when one purchases in cash is lower when compared to hire purchase. The difference is a result of interest charged on the installments. However, interest charged on hire purchase is fixed unlike in the case of other financing options. Even when there are changes in Central Bank Rates, your hire purchase total cost will not change as the interest rate is fixed.

·         Convenience

Convenience is arguably the biggest benefit one is set to enjoy when they choose hire purchase over cash purchase. When paying for household items using hire purchase, one is able to spread the cost. In the case of a cash purchase, one has to pay all the cash at once. This can deplete your savings or affect your cash flow. On the other hand, with hire purchase, you only pay for a fraction of the cost every month. This means that you are left with cash that you can utilize to pay for other necessities.

Hire purchase also makes it easier to acquire and utilize household items in comparison to cash purchases. With a hire purchase, one can acquire the assets and use them immediately after paying the deposit. In the case of a cash purchase, you will only use the items after paying the total cost.

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