Hire purchase is a type of agreement where an individual agrees to purchase a product or service, but instead of paying the entire cost upfront, they make regular payments over time. In hire purchase agreements, the seller retains ownership of the product or service until the buyer completes their payments.
When it comes to financial mathematics, hire purchase involves calculating the total cost of the purchase, the interest rate, and the installment payments. The total cost is the sum of the deposit payment and all the installment payments. The interest rate is usually expressed as an annual percentage rate (APR), and it affects the cost of the product or service over time. The installment payments are calculated by dividing the total cost by the number of payments.
For example, if someone purchases a car for $20,000 with a $5,000 deposit and a 10% APR over 3 years with monthly payments, the total cost would be $22,800. This is calculated as $20,000 + ($20,000 x 10% x 3) + $800 in interest charges. The monthly payments would be $633.33, which is calculated as $22,800 / 36 months.
Financial maths hire purchase
1 answer