A hire purchase plan, also known as an installment plan or often abbreviated as HP, refers to a financial arrangement in which an individual or a business can acquire goods or assets, typically high-value items, by making a series of regular payments over a set period of time. It is a form of buying goods on credit, enabling the purchaser to acquire the asset immediately without paying the full amount upfront.
Under a hire purchase plan, the buyer pays an initial deposit, commonly a percentage of the total purchase price, and then enters into an agreement with the seller or a financial institution to make regular installments over a predetermined period. The ownership of the item remains with the seller or financial institution until the final payment is made, after which the buyer gains full ownership.
While the purchaser is using the goods, they are effectively hiring them from the seller or financial institution. Therefore, if the buyer fails to make the required payments, the seller or financial institution has the right to repossess the item to recover their investment.
Hire purchase plans are commonly utilized for purchasing expensive assets such as vehicles, appliances, or furniture, making them more accessible to individuals or businesses who may not have the immediate funds to make the full payment. The terms of the agreement, including the interest rate and repayment period, vary depending on the nature of the goods and the creditworthiness of the buyer.
