What is the History of hire purchase?

Definition

Amethod of paying for a product in which the buyer pays a deposit followed by a series of installments over a period of time. Ownership remains with the seller or finance company until a specified level of payment is reached.Seller charge the interst on installment paid by buyer,,,'

HISTORY OF HIREC PURCHASE

(i) U.S.A.:

The roots of instalment finance go

right back to the beginning of the

last century to the difficulties experienced

by the American furniture

trade-one of the first handicraft industries

to turn to factory production

-in disposing of its output. "Time

to pay" was the obvious answer to

creating a mass market for furniture

among the lower income groups.

Later instalment credit spread to

such diverse fields as sewing

machines and encyclopaedias. Initially

financed by the sellers, it was

not until 1905 that the now familiar

finance corporation made its appearance

and assumed responsibility

for the financial burden of instalment

purchase transactions.

The really big break for hire-purchase

came with the cheapening of

the motor car before World War I

when the manufacturers, like their

predecessors in the furniture trade,

began to switch from custom-built

products for cash patrons to assembly

line output for the masses.

The selling emphasis changed from

the accumulated past savings of the

buyer to.his future potential income.

A great range of electrical appliances

and wireless sets was added to hirepurchase

facilities in the 1920's. By

*The purchase of a house on terms is not

regarded as instalment credit.

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1929, two out of every three cars in

U.S.A. were sold on terms, and instalment

credit for consumer goods,

including cars, had reached 3i billion

dollars, an amount equal to about

4% of the total of all personal incomes.

The trend of instalment credit in

U.S.A.follows closely the level of

expenditure on durable goods. It

fell away sharply during the depression

with the collapse of the durable

goods market and only regained predepression

proportions in the early

years of the war before Pearl

Harbour. After Pearl Harbour factories

were diverted to war production

and hire-purchase terms were

tightened. From a new peak of 6%

of personal income in 1941, instalment

credit dropped to 11% by 1945.

After the war it took five years to

get back to 1941 levels ; goods were

scarce and people were able to pay

cash from pent-up savings. Then

came the Korean War and hire-purchase

curbs were imposed as a

counter to inflation. These restrictions

were removed in May, 1952,

and a sharp upward burst in spending

has taken the level of instalment

credit to just short of 8% of personal

income. Some down-turn is

now anticipated because of a slackening

in sales of motor cars and durable

goods.

(ii) United Kingdom:

Little data is available on the extent

of hire-purchase in the United

Kingdom. Before World. War II the

British Hire-Purchase Traders' Association

estimated that 4 million

agreements were being entered into

annually and that instalment agreements

accounted for half of all sales

of cars and furniture. The war was

even more severe on hire-purchase

activities in United Kingdom than in

U.S.A. But it has staged a remark-'

able recovery in The last three or

four years ; 75-80% of all furniture

sales in United Kingdom are now

financed by instalment credit and.

about half of all radio sales and a

third of sales of television sets.

However, the absence of any great

volume of motor car sales on the

domestic market has severely restricted

the extent of hire-purchase

finance in Britain as compared with

U.S.A. Also manufacturers and

bankers, unlike their American counterparts,

appear to have been slower

to cultivate the mass market, and this

in itself has narrowed the influence

of hire-purchase in the United Kingdom.

(iii) Australia:

Hire-purchase credit facilities have

been long-established features of retail

trade in Australia, particularly

in furniture and pianos. The subsequent

trend followed the American

pattern-rapid expansion during the

motor car and electrical appliances

boom of the '20's ; stagnation in the

'30's ; a short-lived recovery followed

by war-time frustration. However,

after the war, as goods became

available, hire-purchase finance was

rapidly extended to the limits set

by controls over bank advances and

capital issues. In Australia today

about 30% of cars, 50% of furniture

and 60% of refrigerators are

sold on terms. With• the complete removal

of capital issues controls, and

modifications in bank advance policy,

ample funds are becoming available

to meet hire-purchase demands.

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