It is mainly due to the evolution of hire purchase agreements in the market that owning a car has become a reality for people in the middle income group. Had it not been for hire purchase agreements owning a car would still have been a dream for most people.
Most hire purchase agreements require the borrower to sign an agreement with a lending institution stating that the lender would be the owner of the car till both the principal and the interest is paid of by the borrower. In most hire purchase agreements customers usually pay a deposit and then a fixed monthly installment for an agreed term.
Opting for a hire purchase agreement is convenient for those who otherwise cannot cough up enough cash to pay for the car upfront.
For borrowers opting for hire purchase agreements it is mandatory to take a comprehensive insurance policy to protect the car from damage before the end of the repayment period.
Most lending institutions treat hire purchase agreements as secured loans and therefore offer low rates of interest. In fact so high is the competition in this market that margins have reduced considerably over the years leaving only a few lending institutions in the market. To capture the attention of the customers some lenders even offer zero down payment schemes.
It must be kept in mind by the borrower that the lender has a lien over the car till the end of the loan tenure. Successive defaults in the payment of the equated monthly installments can lead to the car being repossessed by the lender and all payments made till then will be forfeited. The ownership of the car is transferred to the borrower only at the end of the repayment period.
