Hire purchase is a hiring contract between a hire vendor and the hire purchaser where the hire purchaser will have the item bought and use it as their pay balance and interest. Features of hire purchase are the ownership, possession, instalments, down payment and repossession. These features make hire purchase legally binding between the hire vendor and purchaser.
The name hire purchase comes from the contract’s nature, in that the purchaser is hiring with the intent to buy. Hiring is during the period when one is paying their instalments until when the last one is settled. The hire purchaser expresses their intent to buy from a vendor. The hire purchaser thus agrees to take the financing contract as agreed with the hire vendor.
5 Features of Hire Purchase
1. Possession: Once the hire purchase agreement has been signed and the down payment paid, the hire purchaser takes over the possession. The hire purchaser enjoys the product’s utility as they wait for ownership to transfer to them after settling instalments.
2. Ownership: The ownership of the item being sold remains with the hire vendor until all instalments and interest are paid. The ownership is passed to the hire purchaser only after paying all instalments and the interest accrued. Since the hire vendor has ownership at the period through which instalments are spread out, he has hired out the item to the hire purchaser.
Ownership remaining with the hire vendor is, at times disadvantage to hiring purchase. They cannot sell the item in question. If they do not need it anymore, they must retain their possession; hence the item in question is left idling until instalments are fully paid.
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Thus, the hire purchaser enjoys the benefits derived from the sold item, which the hire vendor does not get despite their ownership.
3. Installments: Among the core Features of hire purchase are instalments. It is like a rental charge for using the item in question. The hire purchaser pays instalments to the hire vendor. Instalments are paid over a spread of time as agreed upon. These instalments also include the interest payable. The interest is payable in the hire purchase because it is a form of financing. Thus, one must pay the hire vendor the costs of extending such a financing facility.
Vendors should inform their buyers of the variance between the total hire purchase price compared to the price in case of cash purchase. It is an ethical execution of caveat emptor. At times the hire rice price is too high and could not be worthwhile for some hire purchasers.
4. Down payment: There must be a down payment before the hire vendor accepts to transfer possession of the item in question. Down payment is the part payment made by the hire purchaser to the hire vendor to take over control in signing a hire purchase agreement.
Making a down payment shows one’s commitment to pay the remaining amount. A down payment is also realistic, for the hire vendor needs it to keep their business afloat. At the end of the day, they are in business to sell and not really to hire out their products.
5. Repossession: With hire purchase, goods can be repossessed by the hire vendor. Many instances exist when a hire vendor enforces a repossession.
One of the major instances of repossession is the default of instalments. When the hire purchaser defaults to pay any instalments, regardless of the number of instalments, the hire vendor has the right to repossession. You can imagine a hire vendor repossessing something because you have not paid the last instalments. That may be an odeal experience.
A breach of contract by the hire purchaser can also attract repossession. The purchaser and the hire vendor must abide by their hire purchase agreement until the last instalment is made.
In some cases, the hire purchaser might voluntarily surrender possession of the given product to the vendor. This is an attempt to avoid more instalments and monthly accrued expenses.
The ability of a hire vendor to repossess the goods from the hire purchaser is an element of hiring. Since the hire vendor has ownership, most will go for repossession in case of default. Their intention to repossess is to look for another buyer who can pay. A repossession hurts the credit history of the buyer hence need to avoid it where possible.
6. Higher total cost: When the hire purchaser makes the last payment, the total cost will surpass the cash price. The total cost could double or triple depending on the amount per instalment and the number of them. It is an expensive way to buy in the long run. However, it is a profitable way to sell and make supernormal profits by hiring vendors.
Among other features of hire purchase, this one is overlooked. Buyers only notice how expensive their purchase is as they pay instalments without default.
