Which arrangement involves paying in instalments to hire a item and using it until the last payment is made?

Which arrangement involves paying in instalments to hire a item and using it until the last payment is made?

• A. Trade Credit
• B. Overdraft
• C. Short-Term Loan
• D. Hire Purchase

Answer: (D)

Paying in instalments to hire an item and use it until the last payment is made is Hire Purchase. With this arrangement you can use the asset from the start, while paying regular instalments that cover the price plus interest, and ownership passes to you only after the final payment. This matches the idea of hiring with an option to own at the end. Trade credit is simply paying suppliers later for goods you’ve received, not a contract to hire the asset. An overdraft is a bank facility to withdraw more than you have in account, not a specific asset on hire. A short-term loan borrows money to buy the asset, but you don’t hire it under a plan that transfers ownership at the end.

Paying in instalments to hire an item and use it until the last payment is made is Hire Purchase. With this arrangement you can use the asset from the start, while paying regular instalments that cover the price plus interest, and ownership passes to you only after the final payment. This matches the idea of hiring with an option to own at the end.

Trade credit is simply paying suppliers later for goods you’ve received, not a contract to hire the asset. An overdraft is a bank facility to withdraw more than you have in account, not a specific asset on hire. A short-term loan borrows money to buy the asset, but you don’t hire it under a plan that transfers ownership at the end.