Sorting out your finance options

Hire purchase is a popular way to pay for those big ticket items like a new lounge suite or the latest LCD TV. But if you’re thinking about paying by HP, or any other form of debt, don’t forget to calculate all the costs and explore all the options.

For example, another type of loan (say from a bank or credit union) might have a lower total cost. Or you could delay your purchase, save your monthly payments and avoid going into debt altogether.

Before you sign up for a hire purchase (also called credit sales) agreement, check out the helpful information on Sorted - including these 8 rules of HP:

1. Always ask the retailer to tell you all the fees and charges you must pay.
2. If the deal offers 0% interest, ask what the interest rate will be on balances left at the end of the interest free period.
3. Ask for a copy of the ‘disclosure statement’ detailing all the terms of the credit deal and read it carefully before you agree to the deal.  By law you must be given this statement before you sign or within five working days of signing.
4. Compare the charges and fees with the price of what you are buying. It may be that the charges amount to more than the interest you would pay on a different sort of loan or your credit card.
5. Work out the total interest you will pay on your purchase with our new Hire Purchase calculator. 
6. Only commit to a 0% interest hire purchase or credit sales agreement if you are sure you can repay most, if not all, of the debt in the interest free period. That way you will avoid high interest rates on unpaid balances.
7. Avoid taking on several hire purchase or finance deals at once. It can be difficult to keep track of when each deal has to be paid off and it can be hard to find the money to service many debts running at the same time.
8. Take your time to decide. While, by law, you have three working days after you receive a disclosure statement to change your mind and withdraw from the hire purchase or finance deal, you will still have to find a way to pay for the purchases you made.

Published 21 November 2007