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Hire Purchase (frequently
abbreviated to HP) is the legal term for a contract developed
in the United Kingdom and now found in China, Japan, Malaysia,
India, Australia, and New Zealand. It is also called
closed-end leasing. In cases where a buyer cannot afford to
pay the asked price for an item as a lump sum but can afford
to pay a percentage as a deposit, a hire-purchase contract
allows the buyer to hire the goods for a monthly rent. If the
buyer defaults in paying the installments, the owner may
repossess the items, a vendor protection not available with
unsecured-consumer-credit systems. |
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When a sum equal to the original full price plus interest has
been paid in equal installments, the buyer may then exercise
an option to buy the items at a predetermined price (usually a
nominal sum) or return the items to the owner. Hire purchase
differs from a mortgage and similar forms of lien-secured
credit in that the so-called buyer who has the use of the
vehicles is not the legal owner during the term of the
hire-purchase contract.
HP is frequently advantageous to
consumers because it spreads the cost of expensive item over
an extended time period. Business consumers may find the
different balance sheet and taxation treatment of
hire-purchased goods beneficial to their taxable income.
The need for HP is reduced when
consumers have collateral or other forms of credit readily
available. Acting as a provider of loans is one of the
principal tasks for financial institutions.
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