HIRE PURCHASE ARRANGEMENT Meaning and
Definition
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A hire purchase arrangement, also known as an installment plan or hire purchase agreement, is a financial arrangement commonly used in purchasing goods and assets. It refers to a contract between a seller (typically a retailer or a manufacturer) and a buyer, where the buyer agrees to make regular installment payments over a specific period of time in order to acquire ownership of the goods or asset.
Under a hire purchase arrangement, the buyer is allowed to use the goods or asset immediately upon entering into the agreement, while paying for it in installments rather than paying the entire purchase price upfront. The ownership of the item remains with the seller until the final installment is paid. Once all the payments are made, ownership is transferred to the buyer.
The terms of a hire purchase arrangement are usually pre-determined and agreed upon by both parties before the contract is signed. The agreement typically includes details such as the purchase price, the amount and frequency of installment payments, the duration of the contract, and any applicable interest charges. Interest is often added to the installments, making it a form of credit.
Hire purchase arrangements are commonly used for durable consumer goods such as cars, appliances, and furniture. They provide buyers with the flexibility to purchase high-value items without having to pay for them outright, making them more affordable. However, it is important for buyers to carefully review the terms and conditions of the agreement to ensure they fully understand their financial obligations and any potential penalties for late or missed payments.
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