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Reference.org
Hire purchase
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<p>A hire purchase (HP), also known as an installment plan, is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment (e.g., 40% of the total) and repaying the balance of the price of the asset plus interest over a period of time. Other analogous practices are described as <a href="/facts/Closed-end_leasing/HVyvQwDd">closed-end leasing</a> or <a href="/facts/Rent-to-own/jfeo2kM4">rent-to-own</a>. </p><p>The hire purchase agreement was developed in the <a href="/facts/United_Kingdom/kuPAILt2">United Kingdom</a> in the 19th century to allow customers with a cash shortage to make an expensive purchase they otherwise would have to delay or forgo. For example, in cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a <a href="/facts/Down_payment/K95Eu3k5">deposit</a>, a hire-purchase contract allows the buyer to hire the goods for a monthly <a href="/facts/Renting/3b8gwd3I">rent</a>. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum) or return the goods to the owner. </p><p>If the buyer defaults in paying the installments, the owner may repossess the goods, a vendor protection not available with unsecured-consumer-credit systems. HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different <a href="/facts/Balance_sheet/ovuN89Tg">balance sheet</a> and <a href="/facts/Tax/8cXNkA00">taxation</a> treatment of hire-purchased goods beneficial to their taxable income. The need for HP is reduced when consumers have collateral or other forms of credit readily available, such as <a href="/facts/Credit_card/7pKSB5LD">credit cards</a>. </p><p>These contracts are most commonly used for items such as automobiles and high-value electrical goods where the purchasers are unable to pay for the goods directly. </p>