Hire Purchase
In this topic, you will learn the concept of hire purchase and how it is used in real-life financial situations. Hire purchase is a method of buying goods by paying an initial deposit followed by regular instalments over a period of time.
You will learn how to calculate the deposit, monthly instalments, and total interest paid, and understand how hire purchase compares with paying in full.
Related Lessons:
What Is Hire Purchase?
Hire purchase is when a buyer pays a deposit for a product he purchased, and pays the remainder amount by installment over a period of time.
Calculation of hire purchase is usually by Simple Interest over an agreed period of time. With the GCE O Level syllabus, the buyer cannot back out from the agreement and must complete the whole duration of the instalment period.
In real life scenario, buyer can redeem the loan by paying a penalty to the finance company. This scenario is covered in Banking & Finance courses.
Hire Purchase Calculation
To learn how to calculate the different components in a hire purchase scenario, we will go through a worked example. Note that hire purchase is always calculated in Simple Interest unless otherwise stated.
This example will cover the commonly tested items in a hire purchase agreement, including the down payment, interest incurred, monthly instalments, and total cost.
By understanding and practising the steps shown in this example, students will be better prepared to handle most hire purchase questions in examinations with confidence.