8. Deferred payments

Deferred payments for goods or services are payments made over a period of time on a credit basis. Weekly or monthly payments are normally paid until the goods are completely paid for. Interest charges are normally added to the cash price and the total is called the total hire purchase price.

There are two main kinds of deferred payments:

1 Hire purchase;

2 Credit sale.

HIRE PURCHASE

1 The goods remain the property of the vendor until the hirer makes his last payment.

2 If the hirer fails in his payments before a third of the total hire purchase price has been paid the vendor may repossess the goods immediately.

3 If the hirer fails in his payments after more than a third of the total hire purchase price has been paid, then the vendor must obtain a court order before he can repossess the goods.

4 When the hirer has paid more than one-half of the total hire purchase price, he can put an end to the hire agreement and return the goods to the vendor. Provided the goods are in good condition (allowing for fair wear and tear) the vendor must accept them back and the hirer has no more obligations under the agreement.

5 Hire purchase agreements are legal documents (under the Hire Purchase Act 1964) and the agreements are normally signed in the offices of the vendor. If the agreement is signed elsewhere, for example in the house of the hirer, then the hirer may change his mind and cancel the agreement, providing he does so within five days. If the hirer does cancel, it is the responsibility of the vendor to refund any deposit that may have been paid and also return to the hirer any goods which may have been taken in part exchange, at the hirer’s expense.

6 Hire purchase agreements are normally used when goods have a high secondhand resale value.

CREDIT SALE

1 The goods become the property of the purchaser immediately the first payment is made.

2 If the purchaser fails in his payments, then the vendor may sue him in a court of law.

3 Credit sale agreements are normally used when goods have a low second­hand resale value.

ADVANTAGES

1 Because payments are made over a period of time the hirer/purchaser can use his or her capital for other things.

2 The hirer/purchaser can use the goods whilst he or she is still paying for them.

3 More sales are made by the shops.

4 Because more goods are sold, the factories have to make more and they will probably employ more workers.

DISADVANTAGES

1 The consumer is often tempted to purchase more than he or she can afford.

2 The interest charges are often very high.

Example

Radio bought on hire purchase:

4. OPENING A BANK ACCOUNT AND THE USE OF CHEQUES 12

too- 16

8. DEFERRED PAYMENTS 17

1 The goods become the property of the purchaser immediately the first payment is made. 17

9. THE WHOLESALER 20

10. DOCUMENTS BETWEEN THE RETAILER AND THE WHOLESALER 24

12. THE STOCK EXCHANGE 27

The £22 could be paid over a period of say 22 weeks at £1 each week.

The money needed by the hirer to hire the goods is usually lent to him or her by a finance company. The shop will of course only receive the cash price, but the interest which the finance company adds on represents its profit for lending the money to the customer.

GOVERNMENT CONTROL

If the government wants to restrict the amount of consumer credit spending it will probably require that consumers pay a higher deposit percentage and also make the payments over a shorter period of time. This has the effect of cooling down the economic activity in consumer spending. Alternatively, if it wishes to boost consumer spending and cause the economy to expand, it will probably lower the deposit percentage required and allow the goods to be paid for over a longer period of time. Another/way in which the govern­ment may try to restrict consumer spending is by raising interest rates.

A

Multiple choice questions

Write the following questions in your notebook.

Underline the answer which you think is the correct one.

1 An item will become your property after you have made the first payment if you have signed the following agreement:

a rental agreement;

b credit sale agreement;

c hire purchase agreement;

d loan agreement;

e purchasing agreement.

2 Which type of organization usually finances hire purchase and credit sale agreements?

a A building society;

b a chartered bank;

c bank discount departments;

d finance company;

e the Loans Society.

3 When the hirer (under a hire purchase agreement) has paid more than one-half of the total hire purchase price:

a he can return the goods to the vendor without having to make further payments;

b he has to keep the goods until he has paid a further payment;

c he can pay the full hire purchase price plus 5%;

d he can sell the goods to anyone to whom he wishes to sell them;

e he can keep the goods without making any further payments.

4 A court order is needed (under the Hire Purchase Act 1964) to repossess the goods if:

a less than one-third of the total hire purchase price has been paid;

b more than one-third of the total hire purchase price has been paid;

c more than six payments have been paid;

d the hirer wants to keep the goods;

e the court refers the matter to a higher authority.

5 The total hire purchase price is:

a the cash price plus 10%;

b the selling price of the goods less the discount which may be charged;

c the price laid down by the finance company;

d the cash price plus the interest charged;

e the total interest charged during the first half of the agreement.

6 If the credit agreement is signed in any other place than the offices of the vendor, then the hirer may change his mind and put an end to the agreement providing he informs the vendor in writing within the following period of time:

a 24 hours;

b 5 days;

c 2 weeks;

d 10 days;

e 5 hours.

7 When goods have a low secondhand resale value they are normally sold using a:

a long payments system;

b credit sale agreement;

c hire purchase agreement;

d credit card;

e cheque system with a bankers card.

8 If goods with a cash price value of £125 and a deposit paid of £25 were bought under a hire purchase agreement which charged an interest rate of 20%, how much per month would the hirer have to pay to the vendor over a period of 12 months?

a £5.00;

b £15.00;

c £12.50;

d £12.40;

e £10.00.

9 Under a hire purchase agreement the vendor may repossess the goods without a court order if:

a the hirer has paid less than half of the total hire purchase price;

b the hirer has paid less than one-third of the total hire purchase price;

c the hirer breaks the goods;

d the hirer brings the goods back to the shop;

e the hirer becomes unemployed.

10 If the government raises the percentage of deposit required under credit agreements and shortens the repayment period required it is probably:

a trying to raise more tax revenue;

b thinking of increasing the V.A.T. rate on the goods;

c trying to limit the amount of consumer credit sp'rding;

d trying to increase the amount of consumer credit spending;

e trying to win more support from industrialists.