Hire Purchase

If installment plans and rent-to-own contracts hooked up and had a British baby, its name would be “hire purchase.” It’s a weird name, we admit, but no weirder than some modern celeb baby names out there today.

Anyway, to illustrate the concept of the hire purchase, let’s talk refrigerators. They’re expensive, people; those fancy-schmancy ones with the French doors and the wifi can cost upwards of four grand, and no, we’re not exaggerating. For many of us, that’s not a comfortable purchase to make all at once, so we might sign up for some kind of payment plan. In a hire purchase scenario, we’d take delivery of our space-age fridge and make payments on it, but we wouldn’t actually own it until the last payment is made. We’ll probably end up paying more in interest this way, and there’s a good chance we’ll lose a bunch of money on the deal if we decide to return the fridge for some reason.

Businesses can also use hire purchase agreements, and they work the same way. The good news is that this process allows them to buy expensive items (like machinery and office equipment) on credit. The bad news is that, just like renting-to-own a TV costs a whole lot more than just buying the TV and making payments, companies can end up paying a lot more through hire purchases than they would otherwise.

But hey, needs must when the devil drives, or something...so if companies don’t have a lot of working capital at their disposal but they need stuff now, hire purchase agreements just might be their best bet.