View Full Version : OT: Hirepurchases and Interest rates

04-11-2003, 12:17 PM
If someone has a hirepurchase and theres interest on top of it...
and if they pay it allll off early, say the contract was 3 years and its already been 1 year a half, and they can now pay the whole thing off and they do....do they get anything back for the interest that they paid but didnt need to since it was 1.5 years early repayments?

as i know some places say "you pay earlier you come off better" like pay it early u dont have much interest to pay?...but how does that work with Hirepurchases?

or is it bad luck? you signed it for interest and principle so u pay the lot back?

04-11-2003, 12:27 PM
Usually with hp you lose if you pay early because you contract to have hp for a set time.

04-11-2003, 12:41 PM
well,i dunno about that,in everycase ive had things on HP ringing the finance company and asking for the pay out price if payed on the day has always been lower then the total cost of repayments over the life of the loan......

04-11-2003, 01:05 PM
It may be lower but if you do a true costing you will usually find it is better to run with the contract.

Graham L
04-11-2003, 01:44 PM
It can go either way. The finance company has worked out its rake off over the whole period. Some don't mind you paying off early , and whack a penalty on. :-( Some don't mind you paying off early, and don't. :-)

It will be specified in the contract. They won't penalise you if you ask them. :D

Some will "let you off" even if they are entitled to charge a penalty in the contract. It depends on how much they want your repeat business.

04-11-2003, 01:59 PM
well,if i payed off my house tomorrow it would cost 80 odd grand,yet if i stick to the "deal" put together by the bank then its going to cost near 260 grand........

......now i need a drink......

Graham L
04-11-2003, 02:08 PM
Simple, metla. Just pay it off. Use your credit card. :D :D :D

04-11-2003, 04:48 PM
It's not so much a matter of signing up for $X.00 principal and $X.00 interest, and if paying it off early one has a "penalty". HP does not work on equal payments, rather something called the "1 in 78 Rule". What that says is that there are variable principal and interest components. The first payment has a much higher interest content against principal, than the last payment, where most of that goes towards the principal, as the interest component is almost satisfied. So the payout will vary according to the point in the contract you have reached. You should find some loan repayment sites somewhere where you can enter the variable data. Hope this makes sense!

Graham L
04-11-2003, 04:57 PM
No. The actual term often used is "Penalty for early repayment". The amount to be paid off is the remaining capital amount.

The company has produced a payment schedule, which is part of the contract. But now it's the borrower who wants to save some interest by paying the owed amount early. As I said, some companies allow this. Some charge a penalty, which is stated in the contract. If they don't include the penalty clause, and allow early repayment, they can't charge the penalty. Usually whether they allow early repayment is also in the contract.

It's no help entering numbers into an online calculator. Asking the finance company is the only way to get the correct answer.

04-11-2003, 05:10 PM
quoted off website

"If the cash price of the goods is under $15,000 you can pay the hire purchase off early at any time. You will be entitled to a rebate. This is a reduction in the amount that you have agreed to pay. There are rebates for the finance charges (interest and booking fees), insurance charges and maintenance service contracts. The Hire Purchase Act sets out a formula for rebates. "

website is: Here (http://www.consumeraffairs.govt.nz/consumerinfo/creditissues/hirepurchase.html)

Thats my answer...i am entitled...i know it probably going to be hardly anything but yeah...

and in the contract it doesnt mention 1 word about early payments but mentions that if its late u get penalty interest...

and yes have emailed finance company but havent heard back yet...

04-11-2003, 06:07 PM
I found these to be better alternatives.
Finance it via a bank and bargain with them and pay in cash.
Wait and have enof funds and pay it with cash.
Use credit card and use the interest free period.
Do u have a uni or grad account? These are minimal interest with its overdraft. Like $2 per month to draw a grand and a half or so abouts..

Rod ger
04-11-2003, 08:27 PM
I did an exercise with someone who swore by HP a while ago. What it amounted to was by the time you paid EVERYTHING(insurance charges etc etc+ payments ) and worked out your total costs as opposed to saving up for six to twelve months(+ Interest), and then going and beating down the price for cash, it equated to around half price.

The difference was it took a bit of discipline to make exactly the same payments into you bank before purchase, as opposed to the same payments for twice as much to the HP Co.

Also once you are on this track you are also saving for, and ready to purchase your next item before the alternate.

Here endeth the lesson.

No, I'm not that fundementilist,(hey maybe I am!!) and HP has its place, but its a good idea to look at the alternate.

Sorry this is a bit OT, but I couldn't resist(join the capitilist pigs, don't take their sh!#).

04-11-2003, 08:37 PM
personally i think getting pc's on HP or any finance is stupid. by the time you have paid it off you have a pc that worth half of the asking price and you've paid double the asking price for it.

04-11-2003, 11:29 PM
Sorry Metla but we are talking about hp and not a house mortage

04-11-2003, 11:35 PM
Thanks Graham L I in the I past paid off two hp payments before their time and in both I actually lost money when I did true cost accounting.

04-11-2003, 11:40 PM
I aggree totaly Rod Ger

04-11-2003, 11:56 PM
i'velearnt my lesson myself...hps suck..big time...they can be good but they just suck when it comes to money...
but we have to think/realise...whats making people get hire purchases?....instead of saving?

low interest....no interest...long terms to pay off...latest model they can get for "free" with 1 year deferred...the list goes on..i've noticed noel leemings are now advertising that theres more chance of getting hps as they have made their criteria more flexible..

no wonder nz is in a couple billion dollar debt when it comes to "credit" on creditcards/hirepurchases and loans.....

and with your mortage metla..i think thats kinda different from hps, as a house doesnt go out of date..well it does but compared to a computer......a house is something you actually need...well not need need but yeah its basically part of life to have a house that you can call your own...with a mortage..and you can stay there for the rest of your life...a computer doesnt even last that long..it would just go out of date and shrivel away and become unusable in 10-20 years......but a house would still be standing and if its still in 1 peice after a long time..it can be passed on to your kids (if your that nice) and so on...it becomes part of the family.....

anyway back to the point...i know i would be losing money on paying the hirepurchases off early but i was wondering if i was able to get anything back...even if its only a dollar...so yeah..guess all i needa do is email finance company and find out...or would they not tell me? or is it the law to tell me?...
I dont even care how much it is..i just want what i am entitled to...

Cheers guys for ur comments so far in this thread :)

05-11-2003, 12:17 AM
> and with your mortage metla..i think thats kinda
> different from hps, as a house doesnt go out of
> date.

You wouldn't say that if you saw the wallpaper in my bathroom.

Besides,Credit is a great thing,people just get stuck because of stupidity.

Right now i have a house ticked up,an $800 car stereo,a lounge suite and a full set of bedroom furniture.

And i just booked my holiday accomidation on my credit card,after visiting the bank and getting my limit raised of course.

Whoa.:D :D :D

Wayne H
05-11-2003, 06:54 AM
Finance companies have "A rule of 72"
you WILL pay back 72% of the interest you agreed to pay.
anything more and you might be entitled to a rebate, anything less and they will take it up to that.

05-11-2003, 09:46 AM
I took up HP just for a credit rating as the only proof that my credit was good was my payments being on time for my suppliers, and I really don't like disclosing that information.

They explained that paying it off early doesn't show a long enough history for you to get a credit rating. Also when I took it up the item was interest free for 12 months, I was paying the item off in 6 months, I wanted sooner but 6 months was the shortest they could do, I worked out the cost and it's only a small margin different in the price, approx 10%, even added onto the HP things like extended warranty, something I wouldn't of taken up if I paid it all up front, but since I wasn't buying it for myself I thought it'd be worth it.

So now I have an A++ Credit Rating and that's all I wanted to have. I still get spam snail mail from finance companies saying I can borrow $5-$25k from them but I'm not interested in having debt over my head.

05-11-2003, 09:49 AM
i dont think paying it early would affect mine as this is my 4th..god bless me...hirepurchase and i have a telecom account and power...so yeah...stuff one of those my credit dies for 6 years...if thats what happens when u get bad debt...bad credit for 6 years isnt it?

05-11-2003, 11:30 AM
Well the power and phone is actually a small thorn, paying those off whenever they come in isn't going to tell the bank that they should lend you $50k

05-11-2003, 12:46 PM
true thats true but it tells them that your reliable with paying ur dues on time...i know telecom is a "small" price compared to 50k from the bank...

was there ever a time when you only could spend what you earnt? no hirepurchases no loans no crap?

05-11-2003, 09:11 PM
Ok lets get this sorted.
The advice posted is generally correct but needs clarification.

For our purposes there are two types of loan:
1 Table loan
2 Rule of 78 loan

Mortgages are normally table loans (except for interest only loans).
Table payments consist of interest and principal with the main component being interest for the first 60% of payments (approx).
Normally you can repay a table loan at an earlier date and the interest due stops at that moment. Thus you save money. Penalties are normally only imposed in the case of fixed rate interest periods.

However your local finance company didn't get to be a finance company by giving away interest. Oh no. Under the Hire Purchase Act they are able to apply the Rule of 78 which means that if you repay halfway through the period, you end up paying 3/4 (say) of the interest.
The calculations are in the Act.
Anyway have a look at www.tiac.net/~mabaker/rule_of_78.html

If you cannot avoid borrowing money,try your bank. They do not apply this pernicious rule.