Hire Purchase

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

Hire purchase: paying in instalments, with simple interest added
The deposit, and the balance still owed
SI = (P × R × T) ÷ 100 on the BALANCE, not on the full price
The total to pay back, then the monthly instalment (months = 12 × years)

Extra worked examples

✍️ Extra example: a R6 000 fridge, 10% deposit, 12% per year over 2 years

1
Deposit = 6 000 × 10/100 = R600, so R6 000 − R600 = R5 400 is owed.
The deposit is paid up front.
2
SI = (5 400 × 12 × 2) ÷ 100 = R1 296
P is the balance — the deposit is never borrowed.
3
Total = R5 400 + R1 296 = R6 696
The loan plus the interest.
4
Monthly = R6 696 ÷ 24 = R279
12 × 2 = 24 months.

✍️ Extra example: a R9 000 laptop, 15% deposit, 18% per year over 3 years

1
Deposit = 9 000 × 15/100 = R1 350 → balance R7 650
Find the deposit first.
2
SI = (7 650 × 18 × 3) ÷ 100 = R4 131
Interest on the balance.
3
Total = R7 650 + R4 131 = R11 781
What must be paid back.
4
Monthly = R11 781 ÷ 36 = R327,25
12 × 3 = 36 months.

Exercises to try

Work each one out, then click to reveal the answer.

1
A TV costs R12 000 and a 20% deposit is paid. How much is still owed?
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Deposit = 12 000 × 20/100 = R2 400, so R9 600 is owed
2
R9 600 is owed at 10% per year simple interest for 2 years. Find the interest.
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SI = (9 600 × 10 × 2) ÷ 100 = R1 920
3
Continue: what is the monthly instalment over the 2 years?
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(R9 600 + R1 920) ÷ 24 = R11 520 ÷ 24 = R480
4
A phone costs R4 500 on hire purchase: 10% deposit, 15% per year for 1 year. Find the monthly instalment.
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Deposit R450 → balance R4 050 → SI = (4 050 × 15 × 1) ÷ 100 = R607,50 → total R4 657,50 → ÷ 12 = R388,13
5
Why is the interest worked out on the balance and not on the full price?
Show answer ▾Hide answer ▴
The deposit is paid up front, so it is never borrowed — interest is charged only on the amount still owed.

Read the full lessons

💰Grade 9 · Whole NumbersFinancial Maths: Interest, Hire Purchase & Exchange Rates 🛒Grade 10 · Finance and GrowthHire Purchase, Exchange Rates & Population Growth (Grade 10)

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