Hire purchase finance

Updated: Aug 20, 2021

Retailers selling goods on hire purchase or on credit may need cash more quickly than they receive it. They may therefore employ a finance company, which will make agreements directly with the retailer’s customers. who will make their payments, including interest, direct to that company. Interest is usually upwards of 10 per cent per annum. and the period of repayment depends on government policy. The finance company may require the retailer to guarantee the debt or repurchase the goods if the customer defaults. It will usually pay the retailer an agreed proportion of the hire purchase price when each contract is signed. Alternatively, the retailer may sign hire purchase agreements with his customers and sell these agreements to a finance company, which will immediately pay, say, 75 per cent of the hire purchase price, which the retailer will repay over the period of hire. The retailer then collects the instalments on behalf of the finance company. The charges for this type of block discounting vary according to the risk. and may be from 5 per cent upwards per annum.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.