Lesson Plan
Date: November 2022
Unit Topic: Consumer Arithmetic
Lesson Topic: Hire Purchase
Reference Material: Textbook (Mathematics: A Complete Course, Volume 1 by Raymond
Toolsie)
Specific Objectives: At the end of the lesson, students will be able to:
1. Understand what hire purchase is.
2. Demonstrate an understanding of how to calculate hire purchase cost.
Hire Purchase
Often, we are unable to purchase necessary goods, such as furniture and appliances, by paying
cash immediately. Hence many people are attracted to certain business places that are licenced to
trade in hire purchase (H.P.) terms. Under the hire purchase terms. A customer is allowed to
purchase goods by making a small deposit (or down payment). Interest is then added to the
outstanding balance and the customer is allowed to pay this sum (i.e. amount payable) in a given
number of equal monthly instalments. Of course, the larger the initial deposit, the smaller would
be the outstanding balance and interest payable, and vice versa.
Note: In some modern hire purchase agreements, no deposit (or down payment) is necessary. Of
course, the interest payable is much higher.
Thus:
𝑡ℎ𝑒 ℎ𝑖𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝑡ℎ𝑒 𝑑𝑜𝑤𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 + 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 𝑡ℎ𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 + 𝑡ℎ𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑
Let us look at a few examples.
E.g. 1. The marked price of a television set is $6 980. If the consumer pays cash, then the price is
12% below the marked price. If the set is bought on hire purchase, then the buyer pays a down
payment of $628.20 and 24 monthly instalments of $344.06 each.
Determine for the television:
(a) The cash price
12
100
×6 980
12×698
= 10
8 376
= 10
= 837. 60
𝐶𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 = 6 980 − 837. 60
= $6 142. 40
(b) The hire purchase price
𝐷𝑒𝑝𝑜𝑠𝑖𝑡 = $628. 20
𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 𝑚𝑜𝑛𝑡ℎ𝑙𝑦 𝑖𝑛𝑠𝑡𝑎𝑙𝑚𝑒𝑛𝑡𝑠×𝑡ℎ𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠
𝐴𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = $344. 06×24
= $8 257. 44
𝐻𝑖𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 = $628. 20 + $8 257. 44
= $8 885. 64
(c) The difference between the hire purchase and the marked price
𝑡ℎ𝑒 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 = ℎ𝑖𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 − 𝑚𝑎𝑟𝑘𝑒𝑑 𝑝𝑟𝑖𝑐𝑒
$8 885. 64 − 6 980
= $1 905. 64
(d) The percent interest charged on the outstanding balance
𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 = 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 − 𝑡ℎ𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑
= $(8 257. 44 − 1 905. 64)
= $6 351. 18
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑
∴𝑡ℎ𝑒 𝑝𝑒𝑟𝑐𝑒𝑛𝑡 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑 𝑜𝑛 𝑡ℎ𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 = 𝑡ℎ𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒
×100
$1905.64
= $6351.18
×100
= 30%
E.g. 2. A housewife purchased a video recorder with a cash price of $2 980 under hire purchase
terms. She paid an initial down payment of 20% of the cash price and interest which is
equivalent to 15% of the outstanding balance is charged.
The balance is paid in 18 equal monthly instalments. Calculate for the video recorder:
(a) The hire purchase price
𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑑𝑜𝑤𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 = 20% 𝑜𝑓 2 980
20
= 100
×2 980
20×298
= 10
5960
= 10
= $596
𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 = 𝑐𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 − 𝑑𝑒𝑝𝑜𝑠𝑖𝑡
= $ 2980 − 596
= $ 2 384
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑 𝑜𝑛 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 = 15% 𝑜𝑓 $2 384
15
= 100
×2 384
= 15×$23. 84
= $357. 60
𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 + 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑
= $(2 384 + 357. 60)
= $2 741. 60
𝑡ℎ𝑒 ℎ𝑖𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝑑𝑜𝑤𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 + 𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
= 596 + 2 741. 60
= $3 337. 60
(b) The amount of each monthly instalments
𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑚𝑜𝑛𝑡𝑙𝑦 𝑖𝑛𝑠𝑡𝑎𝑙𝑚𝑒𝑛𝑡𝑠 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑙𝑦 𝑖𝑛𝑠𝑡𝑎𝑙𝑚𝑒𝑛𝑡𝑠
2741.60
= 18
= $152. 31
(c) The difference between the hire purchase price and the cash price
𝑡ℎ𝑒 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 = $3 337. 60 − 2 980
= $357. 60
E.g. 3. A chest freezer can be purchased cash for $3 475 or on hire purchase for a deposit 25%
and 24 equal monthly instalments of $130.31.
Determine for the chest freezer:
(a) The hire purchase price
25
𝑑𝑒𝑝𝑜𝑠𝑖𝑡 = 100
×3 475
1
= 4
×3475
= $868. 75
𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 = 𝑚𝑜𝑛𝑡ℎ𝑙𝑦 𝑖𝑛𝑠𝑡𝑎𝑙𝑚𝑒𝑛𝑡𝑠×𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠
= $130. 31×24
= $3 127. 44
𝐻𝑖𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 = 𝑑𝑒𝑝𝑜𝑠𝑖𝑡 + 𝑎𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
= $(868. 75 + 3 127. 44)
= $3 996. 19
(b) The interest charged
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑 = ℎ𝑖𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 − 𝑐𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒
= 3 996. 19 − 3475
= $521. 19
(c) The percentage interest charged
𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒 = 𝑐𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 − 𝑑𝑒𝑝𝑜𝑠𝑖𝑡
= 3475 − 868. 75
= $2 606. 25
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑 = 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑏𝑎𝑙𝑎𝑛𝑐𝑒
×100
521.19
= 2606.25
×100
= 20%
Class Activity
1. A computer can be bought on hire purchase by making a deposit of $1 360 and 40
monthly instalments of $442 each. Calculate the hire purchase price of the computer.
2. A refrigerator can be bought on hire purchase by making deposit of $500 and 18 monthly
instalments of $56.50 each. Calculate the hire purchase cost of the refrigerator.
3. The retail price of a television set is $4 500. If the buyer pays cash, the price is 10%
below the retail price. If the set is brought on hire purchase, the buyer pays a down
payment of $675 and 24 monthly instalments of $212.50.
Determine the difference between the hire purchase price and the cash price.
4. The marked price of a freezer is $3000. There is a discount of 15% for cash payment. To
obtain the freezer on hire purchase, a deposit of $595.00 and 18 monthly instalments of
$159.50 each are required.
Calculate:
(a) The cash price
(b) The total amount paid if bought on hire purchase
(c) The difference between the cash price and the hire purchase price as a percentage of
the marked price.
5. The marked price of a car is $49 500. A person can pay a deposit of 30% and interest at
12% per annum is charged on the outstanding balance. The total amount payable is to be
paid in 2 ½ years.
Calculate:
(a) The amount of each monthly instalment
(b) The hire purchase price of the car.
