Hire purchase, like any other financing option, has pros and cons. Before opting for a hire purchase when purchasing assets for your home or business, it is advisable to check the benefits and the drawbacks.
What is a hire purchase?
Hire purchase is a purchase agreement allowing buyers to acquire assets at a fraction of the total cost and spread the cost over an extended duration. Buyers without enough cash to purchase items upfront can opt for hire purchase. In this arrangement, the buyer pays a down payment, of as little as 10% of the total cost, and pays the balance in the form of installments. Here are some pros and cons of using hire purchase.
Benefits of hire purchase
Hire purchase has many benefits to buyers looking to acquire high-value assets. Here are some of these benefits.
· Acquire high-value assets
Hire purchase makes it possible for buyers to obtain assets that they can’t manage if they opt to buy upfront. Refrigerators, furniture, electronics, kitchen appliances, and other items are costly. When buyers can’t raise cash up front, they end up opting for low-quality, cheap alternatives. Obtain your dream assets using hire purchase by only paying as little as 10% of the total cost at Kenya Credit Traders.
· Spreading the cost
Another major benefit of hire purchase is spreading the cost. After paying the down payment, the cost is spread in the form of daily, weekly, or monthly payments.
· Manage your cash flow
Hire purchase allows you to manage your cash flow. When purchasing assets in cash, one might utilize all their savings or their income. This will mean that one doesn’t have enough funds for another project or an emergency. With hire purchase, the cost is spread into small and payable amounts every month, thus freeing some cash to use on other activities.
Disadvantages Of Hire Purchase
Hire purchase also has some drawbacks. Here are some of these disadvantages.
· Higher cost in comparison to the cash price
When one opts to acquire assets on hire purchase terms, the total cost is usually higher when compared to purchasing up front. This is due to the interest charged on the installments.
· The risk of losing the assets to the dealer
One does not become the owner of assets immediately after acquiring them from the hire purchase dealer. During the period when one pays the installments, they are hiring the assets from the dealer. If you do not pay the installments, the dealer will repossess the assets and you will lose any payments you have made to that point.
Find out more benefits and drawbacks of hire purchase here.
