Hire Purchase (Solution)

Solution 1:
Products that are offered on Hire Purchase scheme include cars, some electrical appliances (which cost over a few thousand dollars), business equipment and industrial machinery.

The main reason is the cost of these products. They are too expensive for most consumers to be willing to spend such a large sum of money at one shot. Although there may be interest involved under hire purchase scheme, they are more willing to pay for the products by instalment as the monthly instalment amount is usually set at a amount that they can afford each month.

For businesses/corporates, another main advantage is that the monthly instalment payment method gives them more time to make payment and pay only after they have earn money from their businesses, which will lower their initial capital. This will also allow the businesses/corporates more flexibility with their money (e.g. to make other investments to earn more money).


Solution 2:
From the hirer's perspective,

• The main advantage is that these products are made more affordable by their monthly instalment payment method. It also allows the hirer more flexibility with their money.
• The main disadvantage is the higher price that the hirer will have to pay from the interest.

From the retailer's perspective,

• The main advantage is not the interest that they can earn from it. Most of the hire purchase schemes are actually offered by the financial institutes. The main advantage is the ability to sell more products as the monthly instalment is more affordable by most consumers, thus increasing their earnings.
• There is no apparent disadvantage for the retailers as most of the hire purchase scheme are offered by financial institutes.