In Kenya, hire purchase is quickly gaining popularity among business owners as well as consumers. Hire purchase agreements come with a variety of names such as lipa pole pole lipa mdogo mdogo or lipa later. However, before signing a hire purchase agreement, it is essential to understand the basics. This will help you make the correct decision.
How hire purchase agreements work
A hire purchase contract is a sales agreement. However, hire purchase terms are different from a direct sales agreement. In a cash purchase, the customer pays the amount in full to acquire the asset. The buyer also immediately becomes the owner of the assets after the purchase.
Hire purchase is an option for customers who need assets and do not have the money to purchase in cash. These agreements require the buyer to only pay a fraction of the total cost. This can be as low as 10% of the total cost. After this payment, one acquires the items, but they do not own them immediately. One also pays installments to complete payment for the items. You only become the owner after the last installment.
Basics principles of hire purchase agreements
To acquire assets on hire purchase terms, one needs to follow these principles.
The first step of a hire purchase deal is the down payment. One needs to pay a deposit and sign the hire purchase contract before acquiring an asset. After paying the deposit, one not only acquires the items but they are also allowed to use them.
After paying the down payment and signing the hire purchase agreement, one acquires the assets. However, they do not become the owners of the items. One is required to take good care of the items and avoid any damage. You can also not resell the items without following the right procedure which involves the hire purchase dealer.
To complete payment for the assets you acquire on hire purchase terms, you need to make periodic payments known as installments. Installments also come with fixed interest, considering that hire purchase is a form of financing. After the last installment, one can claim ownership of the items.
The transfer of the title is done after one makes full payment of the assets. When you pay all the installments, the hire purchase dealer will transfer ownership of the items to you. Before completing the payments, ownership remains with the dealer. This means that they can cancel the hire purchase agreement when you breach the contract.