When you buy something on hire purchase, you get the item or service and pay it off in instalments. Does hire purchase always work the same way? Priit Pekarev, Head of Retail Banking at Holm Bank, explains.
Hire purchase is usually a form of private consumer credit but not always. The most common type of hire purchase is the one you can apply for and sign an agreement for in a store. You obtain the goods and pay for them over a longer period according to a repayment schedule. This service usually incurs an agreement fee plus interest, but not always.
There are situations where the merchant and the financial company will offer fee-free hire purchase as part of a campaign: you get the goods straight away and pay them off in parts later on without incurring any additional costs.
Some stores also offer a ‘split’ service, which is to say dividing the price up into equal parts. In general, this comes with no extra fees or costs for the customer. Again, you obtain the goods immediately and then pay for them in e.g. three equal parts in such a way that the total cost is no more expensive than if paid for the purchase outright. Whichever the offer, you should always make sure you are aware of the terms and conditions of the agreement and make informed decisions. Even if the service is free of charge, penalties are often imposed if you breach the terms of the agreement, such as by missing a repayment deadline.
The prerequisite for making use of any such hire purchase options is an agreement entered into between the merchant and the company offering the financial services. However, there are still merchants in Estonia who have not embarked on such agreements and who therefore do not offer their customers hire purchase options. Nor has it been possible to buy goods with hire purchase from foreign online stores or when abroad.
Holm Bank recently launched a new service that significantly enhances its existing hire purchase service, Liisi, which was the first of its kind to be introduced in Estonia. Liisi Plus enables consumers to pay for purchases in instalments even in stores that do not offer hire purchases and for shopping made abroad or in foreign online stores. Liisi Plus is not limited to paying in physical and online stores – it can be used to pay for services, whether it be training, dental work, car repairs, or anything else. The bank is currently offering fee-free hire purchases on six-month agreements – with no interest and no agreement fee.
“Holm is Estonia’s own bank,” Pekarev said. “Our roots are in the resort town Haapsalu, but these days we offer services online all over the country. The very first service we offered was the Liisi hire purchase, which people in Estonia have been using now for 28 years. As a small local bank, we are close to our clients: we know what they need, and we can respond promptly to those needs. That is exactly how our new service, Liisi Plus, came about.”
Pekarev says that almost everyone today uses smartphones, the younger generation in particular. “The days when phones were only used to make calls are long gone,” he remarked. “Now they are the camera you always have on you, and the main tool you interact with others. For this reason, it was obvious to us that from the point of view of consumer convenience, we had to approach our new service with smartphones in mind. To apply for Liisi Plus hire purchase, all you need to do is take a photo of the product you want to buy, along with its price tag, and submit it on the Holm self-service site along with your application. The process is as convenient as taking a photo of your pet and posting it on social media.” Pekarev adds that when it comes to Holm’s duty of care and responsibility, the bank is not making any concessions with the new service. “We always check a client’s financial ability to perform repayments,” he said. “Customers should be prepared for the fact that their applications may be turned down if our background checks suggest that payments could cause difficulties.”