Calculation for Hire Purchase

Payments
• To calculate the hire purchase payments for a specific asset, you would typically
need the following information:
1.Asset Price: The total cost of the asset you intend to purchase through hire
purchase financing.
2.Down Payment: The initial upfront payment you are willing to make as a
percentage of the asset price.
3.Interest Rate: The interest rate charged by the financing provider for the hire
purchase arrangement. This is usually expressed as an annual percentage rate
(APR).
4.Payment Term: The duration of the hire purchase agreement, typically stated in
months or years.
• Under Installment system buyer gets the ownership of the asset
immediately after the downpayment, However under the Hire
purchase system ownership passes to the buyer when all the
installments get settled.
• Cash Retail Price:- price payable to buy the asset on cash basis
• Hire purchase price:- Cash retail price + Interest
• Q1. M purchased a car on hire purchase system. The total cash price of the car is Rs.15980 payable
Rs.4000 down payment and three installments of Rs.6000, Rs.5000 and Rs.2000payable at the end
of the first, second and third year respectively. Interest is changed at 5%p.a. You are required to
calculate interest paid by the buyer to the seller each year.
Particulars Cash Retail Price (Crp) Interest Installments
Total cash retail price 15980
(-) Downpayment 4000
(loan amt) Balance 11980

1st Installment 5401 11980 × 5/100 6000

Balance 6579 =599

2nd Installment 4671 6579 × 5/100 5000

Balance 1908 =329

3rd Installment 1908 2000-1908 2000

Nil =92 =17000