About this video
How hire purchase works: paying a deposit and then monthly instalments (with interest) until an item is paid off — a real-life application of simple interest.
What it covers
- Deposit and the balance owed
- Adding simple interest to the balance
- Working out the monthly instalment
- Total cost vs cash price
Extra worked examples
✍️ Extra example: a R6000 fridge, 10% deposit, 12% p.a. over 2 years
- 1Deposit: 10% of R6000 = R600, so R5400 is owed.The deposit is paid up front.
- 2Interest: R5400 × 0.12 × 2 = R1296.Simple interest on the balance for 2 years.
- 3Owed = R5400 + R1296 = R6696; ÷ 24 months ≈ R279 per month.Total balance spread over 24 instalments.
Exercises to try
Work each one out, then click to reveal the answer.
- 1R3000 item, 15% deposit — how much is owed after the deposit?
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Deposit R450, so R2550 owed - 2Simple interest on R2550 at 10% for 1 year?
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R255 - 3Why does hire purchase cost more than paying cash?
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Because interest is charged on the outstanding balance.
Practise this topic
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