When looking to purchase assets for your home or business, you will be on the lookout for payment options available. Not every buyer is capable of outright purchase. You will not always have all the cash to buy a given item. This means that you will need to consider the financing options available. In some cases, buyers seek a loan from banks, Saccos, chamas, or mobile lending apps. However, loans are usually characterized by high interest rates. This makes them out of reach for most buyers.
Why settle for hire purchase
A hire purchase is a better option when compared to a loan. All that you require is a fraction of the total cost of the item that you wish to purchase. After making the initial payment, you are required to make periodic payments known as installments.
Hire purchase vs cash purchase
When compared to a cash purchase, the total cost of a hire purchase is usually higher. The buyer is taken to be hiring the goods during the period they are paying the installments. You only become the owner after making the last installment payment. The difference between a cash purchase and a hire purchase is brought about by the interest charged on the installments by the seller.
Hire purchase vs term loans
The main difference between hire purchases and term loans is the interest rates. Term loans are subject to changes in interest rates. On the other hand, one is charged a flat interest rate when they settle for a hire purchase. This makes hire purchase a favorable option for any business owner or a homeowner looking for assets.
How are hire purchase interest rates calculated?
Different dealers usually offer different hire purchase prices for their products. Shopping around helps you identify a seller offering you the best deal. However, interest rates are almost similar for all these vendors. Here are some aspects that determine the interest rates:
- The length of the hire purchase agreements
- Total number of installments
- Your down payment
- The cash price of the asset
- The value of the asset at the end of the agreement
- The borrower’s credit score