When purchasing a big-ticket item such as a car or furniture, a hire purchase agreement is often used as a financing option. This type of agreement allows the buyer to make payments over time, with ownership transferring to them once the final payment has been made. However, there are specific phrases commonly used in hire purchase agreements that buyers should be aware of before signing on the dotted line.
1. Hire Purchase Price
The hire purchase price is the total amount to be paid by the buyer, which includes the cash price of the item and any interest charges or fees.
2. Initial Deposit
The initial deposit is the amount of money the buyer puts down at the beginning of the agreement. This amount is usually a percentage of the cash price of the item.
3. Instalments
Instalments refer to the regular payments made by the buyer to the finance company over the course of the hire purchase agreement, typically on a monthly basis.
4. Final Payment
The final payment is the last instalment made by the buyer, which completes the hire purchase agreement and transfers ownership of the item to the buyer.
5. Interest Charges
Interest charges are additional costs added to the hire purchase price, which are calculated based on the length of the agreement and the buyer’s credit rating.
6. Default
If the buyer fails to make a payment or breaches any of the terms of the hire purchase agreement, they are considered in default, and the finance company may repossess the item.
7. Early Settlement
Early settlement refers to the option for the buyer to pay off the remaining balance of the hire purchase agreement before the end of the term. This may result in a reduction of the interest charges.
It is important to carefully read over a hire purchase agreement and understand these phrases before agreeing to the terms. Buyers should also be aware of any additional fees or charges associated with the agreement and ask questions if anything is unclear. By understanding the language used in a hire purchase agreement, buyers can make informed decisions about their financing options and avoid any potential issues down the road.