J4

Hire Purchase
This is a system of payment where a customer is allowed to buy an item by paying part
of the price in cash and then making a fixed payment each month for a number of
months.
The first payment is called deposit or down payment, the monthly fixed payment is
called monthly installment.
The hire purchase price is usually more than the marked price.
Example
The marked price of a gas cooker is sh. 450 000. A dealer charges 20% more under hire
purchase. If the deposit is sh. 30 000, calculate the amount of monthly installments if
there are 12 equal installments.
Solution
Marked price = sh. 450 000.
Hire purchase price = sh. 120% of sh. 450 000
120
= × 450000
100
= sh. 540 000
Deposit = sh. 30 000
540000 30000
Monthly installments =
12
= sh. 42 500
Example
A colour TV set is available under hire purchase on payment of a deposit of sh. 20 000
and ten equal monthly installments of sh. 20 000 each. If the cash price is sh. 200 000,
calculate what percentage goes the dealer charge extra over the cash price?
Solution
Deposit = 20 000
Installments = 10 × 20 000 = 200 000
Hire purchase price = Deposit + Installments
= 20 000 + 200 000 = 220 000
Cash price = 200 000
Extra payment = 220 000 – 200 000 = sh. 20 000.
20000
Therefore, percentage = ×100%
= 10% of cash price.
200000
Exercise
1. A sewing machine is sold under hire purchase: a deposit of sh. 25 000 and 12
monthly installments of sh. 16 500 each. If the hire purchase is 18% higher than
the cash price, determine the cash price.