- Currently, the most controversial hire purchase schemes are those involving motorcycles for the boda boda transport industry.
- As most boda boda riders come from low-income households, critics accuse hire purchase companies of exploiting the poor.
Image: PIXABAY
David* has driven his new truck thousands of kilometres across Kenya, from well-built highways connecting major towns to backwater cattle tracks in places most people cannot identify on a map.
David loves his business ferrying goods from one customer to another customer but the demands of the job keep him away from his family. He often sleeps in the truck for a few hours each night because of back-to-back jobs. David cannot afford to turn away business because he must raise money for the truck's monthly instalments.
“After the initial deposit, the repayment rate came to over Sh100,000 per month,” David explains. “I must earn enough money for the truck's maintenance and loan payments and still be left with cash for household needs.”
Meanwhile, Jane*, who works in a hairdressing salon, is struggling to keep up with payments for her six-month-old smartphone. She committed to paying Sh85 per day for a year to fully own the phone, but because of unpredictable wages, she sometimes does not have the money. When that happens, the smartphone becomes inactive until the arrears are cleared.
“My family and friends complain that they can't reach me on the phone. That's because if I don’t pay the Sh85, I cannot make or receive phone calls,” Jane says. She has been pushed into perpetually borrowing money wherever she can so that she can remain reachable.
David and Jane may not know the technical terms for the contracts they signed but they are buying assets through hire purchase. Characteristics of a hire purchase scheme include the ability to go home with the item while paying for it in instalments, interest added to the purchase price, and the possibility of financing through the seller or a separate financier.
Interest fees in hire purchase instalments make the total payment at the end of the contract much higher than if the buyer had fully paid for the item at the very beginning.
Currently, the most controversial hire purchase schemes are those involving motorcycles for the boda boda transport industry. As most boda boda riders come from low-income households, critics accuse hire purchase companies of exploiting the poor. A motorcycle bought through hire purchase costs much more than a motorcycle whose buyer cleared the payment upfront.
So contentious is the matter that the National Senate investigated motorcycle hire purchase companies in 2023 following complaints of unfair repossession of motorcycles. There were also complaints that corrupt employees of hire purchase companies were colluding with criminals to steal motorcycles from boda boda operators.
It is ultimately up to the buyer to understand the terms and conditions of the sale before signing a hire purchase agreement. Get a written contract that specifies the total cost of the asset, interest rates and the repayment period.
It is also important to understand what happens to the asset in case an instalment is missed for whatever reason. Will the seller offer the buyer a grace period to clear payment arrears? Will the seller take possession of the asset immediately without any regard to previous payments already made?