Terms of Payments
Advantages of credit card
Disadvantages of credit cards
b) Hire purchase
To Hire: Means to use someone else’s property for a payment
Hire purchase: Is a method of hiring property with an option to buy.
-The term of payment for a hire purchase are;
-Goods sold on higher purchase are durable and expensive such as; vehicles,furniture, electronics e.t.c
-The buyer can only posses the commodity but not own it.Therefore’the buyer cannot sell the goods to another person before all installments are paid
-Ownership of the goods remains with the seller. The goods are ‘on hire’ to the buyer.
-After completing the payment (after the last installment has been made), a certificate is issued to the buyer as proof of transfer of ownership
- Incase the buyer fails to make payment/defaults in payment; the seller can repossess the goods. However if the buyer has paid two thirds of the total/hire purchase price at the time of defaulting, the seller has no legal right to repossess the goods.
-The seller can only recover the remaining amount of money through a court action
-The seller must display both the cash price and the hire-purchase price on the items to enable the buyers to decide under what terms they want to buy the goods.
- A written agreement has to be entered into by both the seller and the buyer.
The agreement safe-guards the intervals of all of them
-Examples of hire purchase businesses operating in Kenya include; Africa
Retail Traders (ART), Kukopesha, Singer and Amedo.
-For salaried people, the hire purchase has introduced a system where the installments are deducted directly from the buyer’s salary every month.
This is called the check-off system. In this system, no deposits/down payments are required.
The buyer’s employer takes up the duty of remitting the deposits to the seller on a monthly
Advantages of Hire purchase
To the buyer
a. The buyer acquires possession and use of goods immediately after entering into the contract
b. Installments to be paid are pre-determined, so the buyer knows and is able to budget for this amount
c. One can acquire expensive goods/items which are difficult to get on cash terms
d. Payment is spread over a long duration of time making it convenient/suits the buyer’s income
e. Raises standards of living despite limited resources
To the seller
a. The goods belongs to the seller until the last installment is paid
b. He/she can repossess the goods in case the buyer defaults in payments
c. The seller is able to make more profit due to higher prices in the long run
d. The sales volume increase due to greater ability by customers to pay/more buyers are attracted to hire purchase terms leading to more sales
e. No refund is payable to a buyer for goods repossessed from him/her
f. Due to the check-off system, chances of non-payment are minimized.
Disadvantages of Hire purchase
To the buyer
a. The hire purchase price is higher than the cash price.
b. The goods belong to the seller until the last installment is made
c. Because of the easy payment terms, the buyer may be tempted to overspend which might lead to financial problems
d. The variety of goods sold on hire purchase terms is limited to those goods that are durable
e. If the buyer defaults in payment, the already paid ones are treated as hire charges and are not refunded.
f. Goods may be repossessed if the buyer defaults in payment
To the seller
a. Goods repossessed can only be sold as second hand
b. There is a lot of documentation and filing of information/records
c. The cost of operating the business is usually very high
d. The risks of loss on hire purchase sales are normally high as some buyers may default in payment
e. High amount of capital is needed to finance a hire purchase business
f. A lot of money is spent on repair of damaged goods
g. A lot of capital is tied and held in stock and debts.
c) Installment Buying/credit sale(deferred payment)
-In this form of credit selling, the buyer is not required to pay a down payment.
Payment for the goods is made in equal installments spread over a period of time.
These installments cover interest and related costs of selling.
Other features of installment buying
a. The ownership and possession of goods passes on to the buyer immediately the first installment is paid
b. Once the goods have been sold, they cannot be repossessed by the seller even if the buyer defaults in payment.
c. In case the buyer defaults in payment, the seller can obtain compensation through court action.
d. There is a written agreement between the buyer and the seller(creditor)
e. The buyer may dispose of the goods before paying for them fully
f. Can be used for non-durable goods
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