Pitfalls of hire purchase

Published: Sunday | December 20, 2009

Through hire purchase you can enjoy the use of furnishings and other items before you have paid the full price.

But it is way more expensive than paying cash upfront, requiring buyers to weigh the true price of acquiring goods on credit.

You should be wary as well of when a company tells you that it will sell goods to you for a set number of months without interest.

Very often, the price you have in mind is not the price you will pay for the product.

Singer, for example, indicates that the spot cash for its items is different from the "nine-month-no-interest price".

The story is the same with Courts Jamaica Limited.

You should also note that hire-purchase terms may be 12, 24, 30 months or more.

Make sure as well to calculate interest payments to see which 'term' or period to repay best suits your pocket.

The longer the period, the more you end up paying for the item.

At Courts, interest ranges between 10.45 per cent for 10 months, to 84.96 per cent for 36 months to repay.

Term options include three months no interest, 10 months, 12 months, 18 months, 24 months, 30 months, and 36 months.

In November, a Sony Home Theatre System at Courts was selling for cash at $35,999, but for what is described as "three months no interest", the price would be $56,545, or $14,137 monthly.

The same home system, bought on 10 months of credit at 10.45 per cent interest, would cost $62,448 total, or $6,248 monthly.

For 12 months at 28.32 per cent interest, the cost would be $65,694, or $5,475 monthly.

If you choose to pay over two years, then that $36,000 system would end up costing you $88,117 or $3,547 monthly, based on applied interest of 56.64 per cent.

high interest rate

The maximum option is three years, and that would cost you $94,690, or $2,631 monthly, reflecting interest of 89.96 per cent.

Hire-purchase applicants often select the longer periods because the debt is easier to service, though it works out to be the most expensive option.

There are alternatives, however. Credit unions, for example, offer a facility where they will buy the object at cash price, treat the transaction as a loan, and charge a much lower rate of interest to service the debt.

The facility would, however, be available to credit union members only.

You may also consider using your credit card and amortising the amount in equal payments over, say, six months. But whichever method you choose, do some calculations beforehand to determine what each option would end up costing you.

Lay away is another option, but with this type of purchase, you are not able to take the item home until you have paid for it. Still, you would pay no interest on the cash price.

Lease financing, a conditional sale agreement between buyer and seller, allows you to enjoy the use of the object in your home or other location, even though the total price has not been paid upfront.

You will make an initial deposit and subsequent monthly payments over a set period of time, but the seller remains the owner of the item until all payments are made.

You are not allowed to give away, sell or relocate the item until all the payments have been made, as per your hire-purchase contract.

The Consumer Affairs Commission notes that under the Hire Purchase Act, the vendor can repossess the goods if less than two-thirds of the cost of the item has been paid, or if you have been in arrears for two months or a longer period, if so stated in the agreement.

Other aspects of the law

When you enter an agreement to obtain goods on hire purchase, the seller must give you a copy of the agreement which you have both signed.

When you buy goods on hire purchase, you are legally bound to take reasonable care of them until they are fully paid for. If the goods are repossessed, or if you end the agreement early and return the goods, and they are damaged, you may have to pay compensation to the seller.

If you are buying goods on hire purchase, and you do not pay your instalments on time and the issue of repossession arises, the seller must first send you a notice of default and afterwards, a notice that he is going to repossess the goods.

The notice of default should give you at least seven days to make good your payment. After that, the seller's bailiff can repossess the goods.

Repossession should be carried out only by a licensed bailiff, and he must show his licence and ID before entering your premises. In addition, the bailiff may only enter the premises between six o'clock in the morning and six in the evening, Mondays to Saturdays.

As a consumer, you can terminate your hire-purchase agreement before the final instalment is due. You must inform the seller in writing.

You must also make all payments due up to the date of termination. You may have to pay an additional amount, as specified in your agreement with the seller.


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