Pros and Cons of Hire Purchase

Hire purchase is an arrangement of buying expensive consumer goods where the buyer makes an initial payment on the good. The initial payment is normally made and then the remaining amount is calculated and they agree how much is to be paid per month and for how long will it take.

The buyer claims the possession of the good once the initial payment is made. The buyer is able to get the good once the last installment is made. The good can still be repossessed by the seller in case there is a default.

Pros and Cons of Hire Purchase

Pros of Hire Purchase

  1. Helpful for small traders

With hire purchase terms, it is possible for small traders to acquire the most expensive goods. This is because they will be able to pay for the goods little by little until they acquire the good.

  1. It encourages savings

Someone is able to save little by little as he or she is to pay a small amount of money every month until he gets good.

  1. Increases volumes of sales

The seller is able to sell various goods to many people as the seller will encourage even those who do not have the whole sum of money to get the goods hence able to make a lot of sales.

  1. It earns profit

The seller is in a position to earn a lot of profit as hire purchase is normally a little bit higher than cash means of acquiring a commodity.

  1. Convenient in payment

The moment the buyer pays the first installment the possession changes and the records will be made every time the payment is made hence convenient to both the middle class and upper-class people.

Cons of Hire Purchase

  1. The item can be repossessed if the payment is not made

When the initial payment is made then the buyer is not able to make the rest of the payment the item may easily be repossessed by the buyer hence there is no guarantee that the buyer will take the item after the initial payment.

  1. It costs highly

As compared to cash terms of payment, it is costly as the amount that will be required per month will sum up to a lot of money hence it is an expensive way of acquiring a commodity.

  1. Monthly payments reflect on credit ratings

When the buyer makes payments, it reflects on the credit ratings hence the buyer can be in a position to acquire another item through the same means. If the buyer does not pay the monthly installments it equally affects the credit ratings negatively.

  1. Few discounts are offered on this mode of payment

There are usually a few discounts that are accompanied by this mode of transaction. The discounts are only given if the buyer is able to for the item in less than the amount of tie given.

Summary

Hire purchase means of payment are usually expensive as compared to cash means of payment on an item. If the buyer has enough money,  it is cheaper for him or her to pay for the item through cash.

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