Hire Purchase And Installment Payment Accounts - Terminologies - SS3 Accounting Lesson Note

There are some key terminologies used in hire purchase accounts. It is important to understand these terms before entering into a hire purchase agreement. Some key terminologies used in a hire purchase account include:

• Hire Purchase Agreement: This is a legal agreement between the buyer and the seller outlining the terms of the purchase. It includes details such as the purchase price, deposit, instalment payments, and interest rate.

• Deposit: This is the initial amount paid by the buyer at the time of signing the hire purchase agreement. It is usually a percentage of the purchase price.

• Instalments: These are the regular payments made by the buyer to the seller over the term of the hire purchase agreement. They include both the principal amount and the interest charged.

• Interest: This is the cost of borrowing money and is charged by the seller on the outstanding balance of the purchase price.

• Balloon Payment: This is a large final payment due at the end of the hire purchase agreement. It is usually a percentage of the purchase price and is used to complete the purchase.

• Ownership: The buyer does not own the asset until the final installment, including the balloon payment, has been made. Once all payments have been made, the ownership of the asset transfers from the seller to the buyer.

• Default: If the buyer fails to make the required payments, the seller may terminate the hire purchase agreement and repossess the asset.