Hire purchase

Hire purchase is an arrangement for buying expensive goods where a deposit should initially be given. Thereafter, you pay the balance plus the interest in installments. Let us look at a scenario: you want to buy a car worth R500 000 and you give a 10% deposit. The interest rate is 13% per annum (simple interest) for a duration of 6 years. What is your monthly instalment?

First deduct the deposit and then determine the interest on the remaining R450 000. Determine the number of months in 6 years and calculate the monthly installment.

Watch this video for more examples.