What is Hire Purchase and should you use it?
Hire purchase is a way of borrowing money. You purchase an item, such as a television and then make regular payments towards it. While you are paying, you get to have the item and use it and when you have completed the required payments you get to keep the item. A selection of shops offer it as a way to buy items that you cannot afford in a lump sum, so you can spread the cost. It is similar to some other forms of lending, but it is important to understand the advantages and disadvantages of it before thinking about whether to use it.
Buying an item using hire purchase is usually much more expensive than just buying it with a lump sum of money. Of course, many people that do use hire purchase, do so because they do not have enough money to buy the item with one lump sum of money. Others feel that it means they will be able to keep their savings to fall back on as well as buying the item that they want. It means that they are able to buy something that they would not normally have. However, it is important to make sure that you know how much you are paying for the item. Consider the cost of buying it this way and whether it is cheaper to buy it as a lump sum. Consider whether you are prepared to pay that much extra money just to get the item straight away rather than waiting for it. It can be a difficult decision to make. It is often not just about the cost but how important it is for you to have the item.
You may find that alternative ways of borrowing money will be cheaper. An overdraft and credit card will tend to be expensive, but you may find that getting a secured loan could be cheaper than using hire purchase. Make sure that you compare all of the relevant rates so that you can get the best deal available to you. Also make sure that you compare the total cost of the lending including any set up fees, administration charges and things like that. It is worth considering what might happen if you miss a payment as well and whether the type of borrowing you have chosen will be flexible and allow you a little ley way when it comes to making the repayments.
It is worth thinking about the fact that all items available on hire purchase are luxury items. They tend to be electrical goods or furniture, all things which we can, in theory, do without. Obviously it is not nice doing without, particularly if other people have them, but it is possible. It is good to think about whether you really want to spend the money on this sort of item and in this way. Would you be happy knowing that you had paid more than necessary to get something when you could have saved a bit each month and bought it right out? Will you still like the item once you have finished paying for it? Will you feel like you have got good value for money? Consider whether you already have an item that works well and whether you are just getting a new one because you fancy one, yours is a bit old and dirty or whether you really need it.
Of course, using hire purchase could be a way for you to get items that you would otherwise not be able to afford. If you are no good at saving money, then you may never be able to put away a bit each month until you have saved up. Therefore this could be the only way that you could get those products. The products may be items that you really need as well, perhaps cookers, fridges or other white goods. Even buying a washing machine could be seen as necessary and it could be cheaper than having to visit the laundrette.
So whether you use hire purchase is a very personal thing. However, you do need to think very carefully about whether it is the right decision for you. Consider the costs and whether you really need the item. Think about what a difference it will make to your life if you have it and whether you are prepared to pay the extra money in order to get it this way.