Buy a new cell phone, replace the old washing machine or replace the old couch with a new one? Many of these purchases are expensive, and not everyone has the money to buy them right away. But dealers also want to sell their goods. Whether hire purchase is the solution and what advantages and disadvantages it brings is explained here.
What Is An Installment Payment?
The seller and buyer agree to pay part of the goods instead of paying the total price directly. Interest then accrues, just like a loan. The regular partial payments relate to a specific period. For example, an installment can be due monthly, weekly, or every three months. The rate is determined in advance and is based on the price, the term, and the possible service. Often it is tailored individually to the income.
The maximum duration of this form of financing depends on how long the average useful life of the goods is: a car is paid for more slowly than a cell phone. Installment purchase is also possible through many online shops. Potential installment buyers should generally inform themselves in detail about the conditions offered.
Why do dealers offer to hire purchase?
If consumers are not liquid, hire purchase gives retailers the chance to get their shelves or warehouse empty anyway. Many customers are more willing to pay in installments instead of paying the total purchase price directly. The customers pack the goods immediately and pay the sum monthly from then on. More and more retailers are also offering cheap goods for payment in installments, thereby expanding their business.
In addition, the diverse payment options via online purchase enable them to attract even more interested parties. Immediate transfers, on account, by credit card, or PayPal are now standard. It is now possible to pay online with a mobile phone. This gives customers even more flexibility.
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What is to be considered?
With the hire purchase, an expensive purchase is less of a consequence. But the installments are to be paid monthly, and postponement is not permitted. If so, the installments accumulate, and double the amount is due in the following month. This happens quickly when extra expenses are necessary due to broken everyday objects such as a refrigerator or car, and therefore, the rate for the goods cannot be paid. In the event of a delay, a reminder is quickly sent, which is also charged with fees.
In particular, Harz IV recipients are not advised to pay in installments. Income does not play a role in the conclusion of the purchase contract, but customers quickly slip into the debt trap if the money is no longer enough. If the company cancels the installment payment, the entire amount must be paid in one go. It is essential to consider carefully in advance whether the burden is sustainable in the long term.
Many electrical shops or furniture stores lure customers with so-called zero percent financing. If you are on a tight budget, caution is advised here, as additional agency fees are often incurred, or insurance is mandatory. But what happens if the goods are defective before they have been paid off? Therefore, consumers should be sure to familiarize themselves with the details of the warranty and guarantee before making such a financial commitment. The consumer protection center also advises you to find out more about the provider when making online purchases.
Tips for a successful conclusion of a contract
- Does your house bank offer a cheaper loan than payment in installments in a shop or online trade? With cash payment, you can often get discounts.
- Allow for a buffer for unexpected costs.
- Do not make more than three installment purchases at the same time.
- Ask for zero percent financing at no additional cost.
- Arrange a short duration with affordable rates.
- Let the seller calculate the total of the installments and interest. This is how customers find out whether it is a bargain.
Buyers buy a lot by hire purchase, but they prefer certain product groups. At Statista, it can be seen that consumers, for example, find buying electronics, clothing, and shoes in installments to be quite worthwhile, and the same is increasingly valid for cars. From this, one can conclude: the higher the amount and the longer the useful life, the more interest there is in hire purchase.
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These are the advantages of an installment purchase
If financial resources are not available, the installment purchase brings relief. It enables goods to be purchased and used immediately, even though they have not yet been paid for. New acquisitions are necessary from time to time because something is damaged or is no longer energy efficient.
Upgrading is also a popular and frequently used option for smaller electronic devices such as cell phones, tablets, game consoles, or accessories. In addition to cheap offers, there are also bad ones, which is why it is always worthwhile to compare offers.
What are the disadvantages of hire purchase?
Installment purchases seem practical and worthwhile, but there are not only advantages hidden behind this payment method.
- Customers often underestimate their economic circumstances and do not expect the effects of a further monthly burden.
- The only intention of the sellers is to sell the goods. The customer’s financial situation is seldom a concern.
- That is why an installment purchase is often the first step into the debt trap for customers with little financial strength.
- In addition, there are interest, agency fees, or other costs. The bottom line is that this makes the purchase price considerably more expensive.
- It also happens that dealers raise the prices in advance to pass the costs on to the customer in an alleged zero percent financing.
Therefore: keep your eyes open when comparing offers and prices.
Buyer protection through legal regulations – that applies
A purchase contract is concluded with every installment purchase. It must be in writing upon completion. It must be noted which conditions the installment payment entails. Part and cash payment are opposed to each other. The cash payment represents the purchase price if paid immediately. The partial payment includes the amount of the installments, interest, and processing fees, as well as other costs and due dates.
Every private buyer has a two-week right of withdrawal after the conclusion of a purchase contract. During this time, he can have the agreement declared null and void without giving reasons. To this end, the revocation must be submitted in writing. The exact address for the cancellation and the form in which it is to be submitted are specified in the sales contract.
Tip: When sending by post, consumers should send a registered mail and calculate the delivery time. Otherwise, the revocation is deemed not to have been received on time, and the contract becomes legally binding.
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