When buying a big-ticket item like a car, furniture or appliances, you may have heard about two types of payment methods which are hire purchase and conditional sale agreement. These are two financing options that allow you to make the purchase now and pay for it over time. But what exactly are they and what are the differences between the two? Read on to discover more about these payment methods.
Hire Purchase:
Hire purchase is a type of financing agreement where you make an initial deposit, usually around 10% of the total cost of the item, and then pay the rest in installments. The ownership of the item remains with the seller until the final payment has been made. This means that you can’t sell or modify the item until you fully own it. You can choose the length of your payment term, which can range from one to five years, and the interest rate is fixed.
One advantage of hire purchase is that it’s easy to understand and budget for. You know exactly how much you’ll be paying each month and for how long. Additionally, if you can no longer afford the payments, you can terminate the agreement and return the item, however, you will not be refunded any previous payments.
Conditional Sale:
Conditional sale is sometimes referred to as a “pay monthly” purchase agreement. It’s similar to hire purchase, but with one key difference: you own the item from the start of the agreement. Instead of making a deposit, you pay for the item in installments, usually in a monthly payment. The interest rate is also fixed, and the length of the agreement can typically range from one to five years.
One advantage of a conditional sale is that you can usually modify or sell the item once you’ve started paying for it, as you are the owner from the start of the agreement. However, if you can no longer afford the payments, and you are unable to find a buyer for the item, you may still have to pay all the money owed up until that point.
Which One is Best for You?
Now that you understand the difference between the two types of payment methods, which one should you choose? Ultimately, it depends on your specific needs and circumstances. Are you looking for a low-cost way to own a big-ticket item over time? You may prefer hire purchase, as the deposit required would be lower. Would you like to own the item outright from the start? Conditional sale may be the best option. As with any financial decision, it’s important to do your research and weigh up the pros and cons of each option before choosing.
In conclusion, hire purchase and conditional sale agreements both offer a way to pay for expensive items over time, but with different structures and terms. Consider your needs and budget carefully before making a decision, and remember to shop around for the best deal. By making an informed choice, you can enjoy your new purchase without worrying about finances.