What is a Hire Purchase Agreement?
A hire purchase is an agreement between a lender and a borrower, or purchaser. At one time, the term was used mainly in the United Kingdom, but is now used in most countries, although sometimes under different names. In the United States, a hire purchase is generally the same as an installment agreement or contract. It is found in nearly all industries, including car dealers, furniture stores, rental centers, and home appliances and computers. A credit card is a type of hire purchase that is prevalent in the US. A mortgage is also a type of hire purchase.
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Function
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Hire purchases are used to acquire houses, automobiles, furniture, and other large items that generally cannot be paid in a lump sum. Hire purchases function as legal documents for which the lender can legally hold the title until the item is paid in full.
Types
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A hire purchase can be an installment or deferred payment plan. In the former, a set monthly payment is paid on a certain day each month for a specified length of time. After the last payment, the item becomes the purchaser's property. In the latter, the property immediately belongs to the purchaser while payments are regularly made.
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Time Frame
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A hire purchase can be for a few months up to many years. The interest rate can vary from low to high, depending on the institution granting the agreement. Usually, a more expensive item will be set up for 10, 15, or more years. Typically, a mortgage covers a span of 30 years.
Facts
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To be valid, a hire purchase must be signed by both parties. It should contain a description of the item, the price paid, the deposit (if any), monthly amounts due, statement of each party's rights, and requirements, if any, for early termination.
Benefits
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A hire purchase allows a person to buy an item, such as a house, over a long period of time. With such an agreement, the buyer can enjoy his property while making payments. The buyer also has the right to sell the property and allow the new purchaser possession of his house.
Warning
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If the purchaser fails to make the installments in a timely manner, the lender has the right to repossess the property or item. In severe cases, the purchaser may file for foreclosure or bankruptcy, at which time the item's ownership will be returned to the lender.
Considerations
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Generally, a person must be at least 18 years of age to enter into a valid hire purchase. There is no upper age limit to incurring such a purchase agreement. Each person should carefully consider his financial position before incurring any type of hire purchase.
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