What is a Hire Purchase Agreement?
A hire purchase agreement is an agreement where a good is purchased in installments. Each installment amount also serves as payment for leasing the good. The purchaser gets to the use the good while they are paying it off and once they pay the final installment, the ownership of the good is transferred to the purchaser.
Who uses hire purchase agreements?
Hire purchase agreements are most commonly used by small businesses as an alternative to a business loan. They allow the business to acquire the equipment they need without having to come up with the upfront cost of buying the good outright.
Who are the parties to the hire purchase agreement?
There are two parties to the hire purchase agreement. The first party is the hire purchaser who is acquiring the goods. The second party is the financier who owns the goods until the hire purchaser makes the final instalment payment. The financier can be the company that supplies the good, say the vehicle dealership on a hire purchase agreement for a ute. Or, another common arrangement is for a third party finance provider to buy the good outright and then create the hire purchase agreement with the purchaser.
What is in the agreement?
- The parties to the agreement
- Description of the good or equipment
- The rate of hire (the instalment amounts) and interest payable
- The payment schedule
- Total amount payable
- Consequences for falling behind on payments such as repossession
- Rights and obligations of each party
What else should I know?
First, if you are thinking of entering a hire purchase agreement, it is important that you remember that the financier is the legal owner of the goods until the final payment is made. This means you need to understand your responsibilities under the agreement and what will happen if you don’t make payments on time including the circumstances under which the financier will repossess the goods. You also need to make sure you are clear on what your financial obligations will be if you damage the goods.
Secondly, the Australian Consumer Law applies to both hiring and purchasing goods. This means that the consumer guarantees such as that the good will be fit for purpose apply to the good you are hire-purchasing.
Finally, get it in writing! Make sure that anything you agree to is written down to avoid hassle and grief down the track.
If you need assistance reviewing a hire purchase agreement, please don’t hesitate to get in touch!