hire purchase

   Hire purchase, commonly abbreviated to HP (called ‘instalment credit’ in the USA, where the system emerged in the nineteenth century) plays an important but decreasing role in providing consumer credit, especially for poorer people, for the purchase of high-priced domestic goods such as carpets, furniture and electrical appliances and also, rather more generally, for cars. It is also quite extensively used by firms to ease cash flow problems when large items of equipment are needed. Instead of paying for the goods before taking them away or having them delivered, the purchaser is usually (though retailers can make arrangements for exceptions) required to pay immediately only an initial deposit, which is a percentage of the price. Thereafter the purchaser must pay off, generally in equal monthly instalments over a fixed term, usually of up to two years, the balance of the price and the total cost of interest over the period of the contract. Since interest is levied on the total cost of the goods throughout the period stipulated, HP can be quite expensive by comparison with other forms of credit (for example, personal loans and credit cards, which have tended to take the place of hire purchase) under which the charge for interest falls as and when the debt is reduced. There are, however, legal safeguards against extortionate rates of HP interest. Often purchasers are also encouraged to take out insurance against payment problems arising, for instance, from illness and unemployment; although such protection is valuable, it also increases costs.

   Technically, the goods that HP customers are able to take and use remain the property of the sellers (or the finance house to which they have most likely sold on the debt) until all instalments have been paid. In the event of any default by the customer, they can be ‘repossessed’ (taken back) by the provider. In practice, however, some accommodation is often reached since part-used goods have very limited market value, even if the customer has scrupulously fulfilled the legal obligation taking reasonable care of them. Legislation since the 1930s has been designed to protect customers from high-pressure salesmanship aimed at persuading them to take on excessive burdens at high interest rates. Postwar governments have also regulated HP, especially for cars, to curb credit during economic emergencies.

   See also: cash and carry; credit cards; discount stores; mail order

   Further reading

    Goode, R.M. (1970) Hire Purchase Law, London: Butterworth.

   CHRISTOPHER SMITH