Hire Purchase

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DEFINITION of 'Hire Purchase'

A method of buying goods through making installment payments over time. The term hire purchase originated in the U.K., and is similar to what are called "rent-to-own" arrangements in the United States. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid.

BREAKING DOWN 'Hire Purchase'

Leasing goods in this manner is a tactic commonly employed by businesses in order to enhance the appearance of earnings metrics. For instance, by leasing assets, it may be possible to keep the debt used to pay for the assets and the asset itself off the balance sheet, resulting in higher operational and return-on-asset figures. In the U.S., consumer rent-to-own arrangements are controversial because they can be used in a way which attempts to circumvent proper accounting standards.

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RELATED FAQS
  1. What are the financial benefits of hire purchases?

    The primary financial benefits for a company using a hire purchase plan include maximizing working capital, the ability to ... Read Full Answer >>
  2. What are the most common instances to use hire purchases in a small business?

    Hire purchases are commonly used to acquire high-dollar business assets, such as technology equipment, transportation fleets ... Read Full Answer >>
  3. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  4. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  5. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  6. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
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