7 things you need to know about a Hire Purchase loan
There are seven things you should know before you ever think of getting a Hire Purchase loan.
Knowing these things will give you control and power in the loan process.
Power and control will will save you money
Most common type of vehicle and goods financing is through a Hire Purchase Loan product. This is for those who do not have the cash at the time or want to conserve their cash. They are able to buy the goods and pay them off over a period of a Hire Purchase Loan. The lender owns the goods until complete payment of the Hire Purchase loan are made &then the title is passed on to the person/s who paid off the loan.
Questions for a financial advisor.
Always make a point to ask your taxation or financial advisor on the effects of tax and cash flow management.
Do the loan repayments and laon residual balloon payments include goods and services components?
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For asset depreciation and interest deductibility are the assets effectively owned by me even though the title does not pass until the loan maturity?
On a cash accounting basis for goods and services tax must I claim the goods and services tax component proportionally across the loan term?
If I am on a cash accounting basis for goods and services tax are likely to be unsuitable for hire purchase loan?
Should the goods and services tax I am going to pay be financed through a loan or should I pay cash for it and keep it out of the loan?
Generally loans in hire purchase are for 12 to 60months.It is very important that you take into account the life of the goods you are buying compared to the life of the hire purchase loan.
How long will they last? Take a computer for instance.It is unlikely they will last longer than three years. So why would you take out a hire purchase loan for 5 years. Fit the term of the loan around the use by date of the product.
If you are given a 5 year guarantee on the product then you can go for the 5 years Hire Purchase Loan.
Supplier and dealer invoice the lender directly.
It is best that you shop around for the hire purchase and avoid using the retail stores package.
Contact a Finance Broker for an introduction to the finance package you require.Once you have selected the finance provider,inform the retailer and they will bill the lender directly. That is all you have to do with the retailer.
Deposits and trade-ins can be used.
It is important to see the effect of a deposit or a trade-in on the monthly payments and the term of the Hire Purchase.
When you are buying ensure that you get a trade- in, look at what you can sell it for directly before you go to the seller.
Loan can be fully amortised or balloon payment factored in.
Generally you can either pay the loan out in equal payments. This is called amortisation.
Alternatively you can make equal payment for all payments except the last one. The last one can be up the 50% of the total loan. This is called a balloon payment.
Be very careful and ensure that you have a good understanding of balloon payments. It is critical that you are can estimate the potential value of the goods you are buying in three or four years time at the time of the purchase.
Other payments structures such as seasonal payments are available.
Discuss your cash flows and have on hand the documents to prove what you saying. In these cases you will be surprised what a lender will be able to do to fit in with your household or business.
The golden rule: ASK!!
While it may state the obvious, many people get into financial difficulties by having multiple Hire Purchase Loan agreements running simultaneously. They are in effect loan financing the house or the business.
While credit cards are the primary destroyers today loans via hire purchase and personal loans are up there. You must be very aware of this and take responsibility to act conservatively when dealing with loans.
So what should you do? Do not take on more Hire Purchase Loans than you can safely repay!
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