State five effects of hire purchase on each of the following;
(a) buyer
(b) seller
Explanation
(a) The following are the effects of higher purchase on the buyer;
(i) He can beat any future increase in price by buying now in hire purchase.
(ii) Buyer will find it convenient paying by instalments.
(iii) He gets the goods for use, though full payments have not been effected.
(iv) He could lose through repossession in the event of -default.
(v) Buyer pays more for the goods.
(vi) He is encouraged to mortgage his future income / to live- beyond his income.
(vii) He enjoys an increased standard of living.
(viii) He can return the goods after paying 50% of the price.
(ix) The buyer can be sued in case 9f defaults.
(b) Effect of hire purchase on the Seller
(i) There will be an increase in sales.
(ii) Seller gets more profit selling on credit as the hire purchase price is more than the cash price.
(iii) Hire purchase encourages faster sales of durable expensive goods.
(iv) It also increases bad debts as a result of debtors running away.
(v) Repossessed goods may be so badly used that it is not possible to dispose of them.
(vi) He will incur additional costs to collect the necessary instalments (keeping records).
(vii) He can only repossess the goods ‘through the courts after 2/3 of the price has been paid.
(viii) In hire purchase, the seller can repossess his goods.