What is Hire Purchase?
You want to buy something but you don’t have the money. For certain items, you might just want to consider Hire Purchase. Hire Purchase, in a nutshell, means hiring goods with the option to purchase it. You are the hirer and the financial institution is the owner. Upon full payment of the installments payable, ownership is transferred to you. Meanwhile, you get the benefit of possessing and using the goods.
Common items or goods which may be available under Hire Purchase schemes include:-
- Motor vehicles - eg. cars, motorcycles, buses, taxis, etc;
- Industrial heavy vehicles - eg. forklift, tractors, bulldozers, cranes, etc;
- Electrical consumer goods - eg. washing machines, vacuum cleaners, refridgerators, etc;
- Commercial equipment - eg. baking ovens, commercial freezers, printing machines, etc;
- Computer equipment - eg. desktop computers, notebooks, etc.
But why Hire Purchase? The first reason is of course, it is a means to enable you to possess and use items which you would not be able to afford to purchase outright. Using a Hire Purchase facility enables you to improve your lifestyle and / or standard of living.
Secondly, it might make commercial sense to spend as little capital outlay as possible so that the business has enough capital to run the day to day business. For example, assuming you wish to open a bakery. You have an initial capital of RM100,000.00. The baking oven and dough machine costs RM50,000.00, which is about 1/2 your available capital. Taking into consideration other start-up costs like renovations, purchase of ingredients, staff salary and utilities, it might make better sense to enter into Hire Purchase agreements to get the baking oven and dough machine by paying instalments of say RM2,500.00 per month and free up the rest of the initial capital. Eventually, the baking oven and dough machine would be yours to keep.
Thirdly, in some sectors, keep using the latest equipments might be necessary to run the business. I am aware of some large multinationals which go into Hire Purchase agreements with computer giants for the supply of computers for business use. Part of the package includes automatic upgrading of the computers every 3 years if the hirer exercises the option of not fully purchasing the computers at the end of the 3 years. The computers are sold back to the computer companies instead. That way, the computer companies make money through receiving hire income whilst the multinational has an option to fully transfer or upgrade its equipment when the time comes.
That, in summary, is an introduction into Hire Purchase and its benefits.
comments
You got something to say?