Hire Purchase

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What is a 'Hire Purchase'

A hire purchase is 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?

    Discover more about a hire purchase plan, and learn some of the specific financial benefits for a company using this plan. Read Answer >>
  2. What are the most common instances to use hire purchases in a small business?

    Learn when to use a hire purchase to manage the cost of high-dollar business assets so your company can reach its full potential ... Read Answer >>
  3. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
  4. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

    The correct answer is: A) Under the capitalized lease method, the lessee must treat the asset as if it was purchased with ... Read Answer >>
  5. How have low interest rates affected lease rates in the automotive sector?

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  6. At the beginning of the year, HIJ Corp. began to lease new equipment ...

    The correct answer is: b) Total Lease Payment = Interest expense + Principal repayment Step 1: Interest expense = 8.5% of ... Read Answer >>
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