Definition of hire purchase
Hire purchase is defined as a credit agreement or financing method that allows you to hire assets and purchase them on a future date. Businesses, as well as individuals, can benefit from a hire purchase. Most businesses resort to hire purchase when looking to acquire high value machinery which they intend to own. A hire purchase is considered favorable when compared to a lease agreement. In the case of a lease, one doesn’t become the owner of the assets. However, with hire purchase, you will become the owner of the asset after making the last payment.
Nature of hire purchase
Before one signs a hire purchase contract, it is always advisable to invest effort and time learning the nature of hire purchase agreements. This ensures that the hirer makes an informed decision. Here are some main characteristics of hire purchase finance.
· Ownership of the assets
As the hire purchaser, you only become the owner of the asset after paying the last installment. While you acquire the assets for use immediately after paying the deposit, the dealer remains the owner of the assets until you complete payment of the installments. One cannot pledge, mortgage, transfer or resell the asset without authorization of the hire purchase dealer.
· Payments for the asset
When out to purchase an asset on hire purchase terms, one makes an initial payment. This down payment is usually about 10% of the total value of the asset. Afterwards one clears the remaining balance in the form of installments. The frequency of this installments can be daily, weekly, monthly, half-yearly or annually, depending on the value of the assets. Every installment that one pays is treated as a hire charge for the asset.
· Termination of the agreement
At the end of the hire purchase agreement, when the hirer pays the last installment, they become the owner of the assets. However, if you do not plan to own the assets, you can return them any time to the seller, and you will not be required to pay any further installments. The owner might also repossess the assets when you fail to make the payments as outlined in the hire purchase agreement. In any case where the assets or goods are returned to the dealer, the hirer cannot claim back any payments from the dealer as the payments were treated as charges towards hiring and use of the asset.
Learn more about hire purchase agreements on our blog page. Also get the best hire purchase deals in Kenya by visiting our page, Kenya Credit Traders.