Hire Purchase Study Notes

Hire Purchase Agreement Overview

• Definition: Hire purchase is a method of acquiring an asset through an agreement where the buyer pays a deposit and then pays off the remaining amount in installments over time.

Example Scenario

• Purchaser: Hlon
• Item Purchased: Couch
• Cost of Couch: R12,600
• Government Levy: 15%

Financial Breakdown

1. Deposit Calculation

   • Required Deposit Rate: 15% of the total purchase price.
   • Calculation:
     • Deposit Amount = Cost of Couch × Deposit Rate
     • Deposit Amount = R12,600 × 0.15
     • Deposit Amount = R1,890

2. Loan Amount Calculation

   • Loan Amount = Total Couch Cost - Deposit
   • Loan Amount = R12,600 - R1,890
   • Loan Amount = R10,710

3. Interest Rate Details

   • Interest Rate: 7% per annum (p.a.).
   • Duration of Loan: 3 years.

4. Total Amount of Loan Over 3 Years

   • Calculation of Interest on Loan:
   • Total Interest = Loan Amount × Interest Rate × Duration
     • Using the formula,
     • Total Interest = R10,710 × 0.07 × 3
     • Total Interest = R2,251.50
   • Total Amount Payable = Loan Amount + Total Interest
     • Total Amount Payable = R10,710 + R2,251.50
     • Total Amount Payable = R12,961.50

5. Monthly Repayment Calculation

   • Total Months in 3 Years: 36 months
   • Monthly Repayment = Total Amount Payable / Total Months
     • Monthly Repayment = R12,961.50 / 36
     • Monthly Repayment = R360.04

6. Total Amount of Couch That Hlon Must Pay

   • Total Paid Over Loan Term = Total Amount Payable
   • Total Amount Paid = R12,961.50

Summary of Financial Obligations

• Deposit: R1,890
• Loan Amount: R10,710
• Total Interest Paid: R2,251.50
• Total Amount Payable: R12,961.50
• Monthly Repayment: R360.04
• Final Total Payment for Couch: R12,961.50