Hire purchase: why the confusion with full payment?

Author: Iloka Benneth Chiemelie

Published: 21st of June 2014

In any business, what the customer desires is to gain value for price paid, and the seller desires good price for value offered. However, there are numerous cases were the consumers’ inability to offer required prices become an issue in terms of effecting the transaction process. In economics, production is not considered complete else the finished goods have reached the final consumers, as this is the only way that the producers will obtain value of investment in the course of effecting production.

Hire purchase is a form of payment in which the sellers issues the product to the buyer without full payment, but based on agreed terms of payment in which the buyer must complete payment within agreed date. In this form of payment, the seller is giving buyer privilege to make use of the product to generate fund to complete payment for the product. This form of payment is acceptable for unperishable and long-term goods. Just like the goods, hire purchase can come in either shot-term or long-term depending on the product and agreements between transacting partners.

A very good example of hire purchase in Enugu is the state cab network in which interested individuals apply for a cab, pay deposit for the cab and then pay installments until the cab is completed paid for. This form of payment is also used for Keke na pepe. It is the government’s way of promoting employment, eradicating poverty, as well as enhancing the transportation system of the state.

In some cases, buyers of hire purchase do presume that their deposit and allowed access to the product means that they have fully paid for it. This confusion comes as a result of two major factors. The first is illiteracy. Some of the buyers have no clear understanding of what hire purchase is all about and they don’t have cognitive reasoning to read meaning into the contract signed. Second is because they already have access to the product and they can use it whenever they want and for whatever they want. Thus, it is not surprising to notice these buyers thinking that such terms grants them full ownership of the product.

For instance, I witnessed a case in Peace Mass Transit Ltd, where an individual who purchase a on hire purchase and registered it was with Peace had the car seized by the seller because of lack of obedience to repayment terms. The buyer was arguing that it is his car, while the police was busy letting the buyer know that he is not legally the owner unless he has completed full payment for the vehicle.

Thus, it is very clear from the above analysis that hire purchase doesn’t give the buyer the ownership of the product, instead it is only through complete payment of for the product that the buyer can own the product. Hire purchase is only a privilege for the buyer to use the product and generate money that will be later used to pay for the same product. After full payment, the buyer will own the product and whatever profit that comes from it.

In conclusion, it can be stated that since people are sometimes confused of what hire purchase is all about as a result of the privilege given to them or as a result of illiteracy and lack of understanding of what hire purchase is all about, the best solution is to alert them on the contract. The seller should ensure that the buyer is clearly communicated and alerted on what hire purchase is all about as well as the terms and conditions in such purchase system. This will eliminate issues of buyers thinking they own the product and also address issue of buyer’s lack of adherence to set terms and conditions.