What is Hire Purchase?

Itâ€™s a way of obtaining the use of assets, such as furniture and appliances, before payment is completed. Once the final payment is made, the asset becomes your property. Under the HP agreement the customer is allowed to purchase the item by making a small deposit (or down payment). Interest is then added to the outstanding balance and the customer is allowed to pay this balance in an equal monthly or weekly installments. (Installment: A payment of part of a debt which is usually paid at regular intervals.)

# Hire Purchase

What is Hire Purchase?

Itâ€™s a way of obtaining the use of assets, such as furniture and appliances, before payment is completed. Once the final payment is made, the asset becomes your property. Under the HP agreement the customer is allowed to purchase the item by making a small deposit (or down payment). Interest is then added to the outstanding balance and the customer is allowed to pay this balance in an equal monthly or weekly installments. (Installment: A payment of part of a debt which is usually paid at regular intervals.)

**Objectives:**
**1.** Students will recognize the importance of shopping around for the best deals.

**2.** Students will understand their responsibilities and the consequences when burrowing money.

Calculate

(a) the deposit.

(b) the total monthly installment.

(c) the hire purchase cost on the stereo.

(d) how much could have been saved by paying cash.

Solution

(a)deposit = 20% × 1400 = $280.

(b) Total monthly payments = 12 × 110 = $1320.

(c) The hire purchase cost = $1320 + $280 = $1600.

(d) The savings = $1600 - $1400 = $200.

Practice questions

**1.** Sue bought a Livng-room Set on the Hire Purchase Plan.

**CASH PRICE: $3600
HIRE PURCHASE PLAN: $700 DOWN PLUS 20 PAYMENTS OF $200.00 EACH**

Calculate

(a)(i) the total monthly payments.

(ii) the total cost of the Set on the hire purchase plan.

(iii) her savings if she had bought it cash.

(b) Write the savings as a fraction of the cash price in its lowest term.

**2.** Mrs. Rolle purchased a computer
using the payment plan.

**CASH PRICE: $1220
OR 20% DOWN PLUS 12 EQUAL PAYMENTS OF $112.00 EACH**

Calculate

(a) the deposit.

(b) the total monthly payments.

(c) the total cost of the computer on the payment plan.

(d) how much she would have saved by paying cash.

**3.** AJ's Limited offers 2 payment options on refrigerators

**CASH PRICE: $1220
**

**PLAN A: $120 DOWN + 12 EQUAL MONTHLY PAYMENTS OF $114 EACH.
**

**PLAN B: BANK LOAN OF $1220 FOR 2 YEARS @ 18% PER ANNUM SIMPLE INTEREST**

Joe decided to purchase a refrigerator
using Plan A.

(a)Calculate

(i) the total monthly payments.

(ii) the total cost when using Plan A.

**Brittney's mother decided to purchase
one of those same refrigerators
using Plan B.**

(b)Calculate

(i) Calculate the interest on the refrigerator using Plan B.

(ii) Calculate the total cost of the refrigerator, using Plan B.

(c) Which of the options is cheaper for the customer?

(d) How much cheaper is this plan?

Answers

**(1)**(a)(i) $4000.00

(ii) $4700.00

(iii) $1100

(b) ^{11}⁄_{36}

**(2)** (a) $244

(b) $1344

(c) $1588

(b) $368

**(3)** (a)(i) $1368

(ii) $1488

(b)(i) $439.20

(ii) $1659.20

(c) Option A

(d) $171.20

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