What are the advantages and disadvantages of buying items through a hire purchase agreement?

• The advantages of buying items through a hire purchase agreement can be summarised as follows:
  • you have exclusive use and possession of the item without paying a large upfront purchase price;
  • you can negotiate the terms of the hire purchase agreement so that the amount and regularity of payments is within your budget; and
  • since the agreement is secured by the item being transacted the acceptance rate for a buyer applying for hire purchase finance is greater.
• There are a few disadvantages of buying items through a hire purchase agreement:
  • interest rates can be high especially for buyers with a bad credit rating;
  • if the buyer no longer uses the item they still have to keep making repayments over the life of the agreement for example if a car was purchased on a hire purchase contract and the car is written off in an accident the buyer still has to pay any outstanding repayments on the agreement even though they can no longer use the car; and
  • as most hire purchase agreements extend for years the value of the item may have depreciated significantly by the time ownership transfers to the buyer.