Do you know about hire purchase ? If you buy some good that are very expensive such as car or house than you must know about this term unless you buy in cash. In this article, I’ll share some hire purchase basics.
What is Hire Purchase
– Hire Purchase is the legal term for a contract which being agreed by purchaser to pay for goods in parts or a percentage over a number of months. Some of country using ‘installment plan’ term for this method. Hire purchase must have a hire purchase agreement that the ownership of the good will be transfer after the last payment is made.
– The term originated from U.K and is similar to ‘rent to own’ aggrements in the United States. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contact is paid.
Hire Purchase Basics
This is some of the term about hire purchase basic :
Minimum deposit – There’s a minimun deposit from the good value based on financial institutions.
Interest rate – There’s a fixed rate for hire purchase basics but it still based on financial institutions. But there’s a limitation rules by government laws.
Effective interest rate – This is the actual interest that you pay after taking into account annual compound interest on the loan over its tenure.
Late payment charges – The borrower will be charged a late penalty if not paid in schedule. This interest is charge on a daily basis.
Guarantor – Financial institutions may require a guarantor who will be responsible for the unpaid portion of a loan including interest, if you default on your loan.
Insurance – Financial institutions require an owner to undertake a comprehensive insurance policy
Repossession – Financial institutions can reposses asset as they are the legal owners.
Source :- Investopedia
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