Hire purchase remains one of the best finance options for home and business owners in the market for assets. However, it is vital to analyze a hire purchase deal before choosing it and ensure that you only make the correct decision. Hidden costs and fees in hire purchase deals are easy to overlook, but they can significantly increase the cost of the asset you are purchasing. It is thus essential to always understand the fine print of a hire purchase agreement before signing.
Hire purchase payments
In a hire purchase deal, here are the common payments that a buyer pays to the dealer.
Before you acquire an asset on hire purchase, the dealer requires a down payment. One can choose the amount to pay as a deposit, but dealers such as Kenya Credit Traders accept as low as 10% of the total cost as a down payment.
2. Interest rates
Cost of items on hire purchase terms is usually higher than a cash purchase. This is usually a result of the interest rate charged. This is the cost of borrowing money to buy the items that you are hiring. The interest rates are usually fixed rates in the case of hire purchase deals.
3. Repayments /Installments
When you acquire goods on hire purchase terms, you will make regular or periodic payments to the seller over a set period. This helps pay for the total cost of the assets and ensures the transfer of ownership.
Other Charges and Fees in Hire Purchase Deals
Besides the common payments, one may also incur other charges in a hire purchase agreement. Here are some hidden costs and fees in hire purchase deals that one ought to check before signing the deal.
1. Late payment fees
Late payment fees are the most common penalty fees in a hire purchase agreement. It is charged in a case where one fails to make the scheduled payments on time.
2. Missed payment fees
Almost similar to a late payment fee, the missed payment fee is charged when the buyer doesn’t make a payment to the dealer.
3. Administration fees
There are hire purchase dealers that charge you an administration fee for different services such as setting up the agreement or making changes to the hire purchase contract.
4. Early termination fees
If one wants out of the hire purchase deal, they might need to pay an early termination fee. This happens when a customer returns the items to the dealer.
5. Early settlement fees
This is a fee that a borrower incurs when they choose to pay for the items earlier than the specifications of the hire purchase agreement. The fee varies from one dealer to the other.
Find out more about hire purchases on our blog page.