Do you intend to acquire household items on hire purchase terms? As is the case with any financial decision, before opting for a hire purchase agreement, one should learn the risks and drawbacks of a hire purchase deal. It is essential to understand how hire purchase works before signing the agreement.

How does hire purchase work?

A hire purchase contract allows homeowners to hire assets that they require and end up as the owners. When one identifies the assets they require for their home, a hire purchase dealer will require them to pay a down payment. This is a fraction of the total cost of the assets and can be as little as 10% of the total value.

The major reason why most homeowners opt for hire purchase when looking to acquire household items is the opportunity to spread the cost. After paying a deposit, one pays the remaining cost in the form of daily, weekly, or monthly installments. However, there are some risks of using a hire purchase agreement.

Disadvantages Of Hire Purchase

·         Higher cost in comparison to purchasing upfront

Spreading the cost of the items you are purchasing is one of the biggest reasons why people choose hire purchase. However, installments that a buyer pays to the dealer come with an interest rate. While the interest rates for hire purchase deals are usually low, they will still make the price of the assets to be higher than what a customer pays when purchasing in cash.

·         You do not automatically own the goods after acquiring them

When one chooses hire purchase to obtain assets, they acquire them at only a fraction of the cost. After acquiring the items, one has the right to use them. However, one doesn’t assume ownership immediately. The buyer hires the assets from the hire purchase dealer. This means that you cannot resell the assets without the authorization of the hire purchase dealer. However, when you pay the last installment, you become the owner of the assets.

·         Commitment to fixed payments

When you sign a hire purchase deal, you will be paying daily, weekly, or monthly payments to clear the cost. The payments are fixed throughout the hire purchase agreement. In any case where your financial situation changes, you may strain to meet the obligations. Lack of payment will see the dealer repossess the assets.

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