Lease and Hire Purchase

Lease and hire purchase payments are usually higher than repayments of a bank loan. However, they have more onerous conditions, such as the right of entry for inspection and the right to repossess the property without delay if payment fails to arrive.

Questions

1. Why are lease and hire purchase payments usually higher than repayments of a bank loan?
2. What are the more onerous conditions of a lease or hire purchase agreement?
3. Why might it be preferable to lease or hire purchase an item even if a bank would be willing to lend the money?

Answers

1. Lease and hire purchase payments are usually higher than repayments of a bank loan because hire purchase and leasing companies are willing to accept rather higher risks, but expect higher rates of interest.
2. The more onerous conditions of a lease or hire purchase agreement include the right of entry for inspection and the right to repossess the property without delay if payment fails to arrive.
3. It might be preferable to lease or hire purchase an item even if a bank would be willing to lend the money because lease and hire purchase agreements do not generally appear in the balance sheet of a co-operative society. The payments are added to the expenses like any other cost of operations. This can be beneficial if the society may in the future wish to raise a bank loan for another purpose.