What type of financing involves making small regular payments on a larger amount borrowed?

What type of financing involves making small regular payments on a larger amount borrowed?

• A. Lease financing
• B. Loan financing
• C. Hire purchase
• D. Grant financing

Answer: (C)

The type of financing that involves making small, regular payments on a larger amount borrowed is hire purchase. In a hire purchase agreement, the borrower makes initial payments to use an asset, like a vehicle or machinery, with the intent to eventually own it after all payments are completed. This arrangement allows the borrower to immediately utilize the asset while spreading the cost over time, effectively making it more manageable. Hire purchase agreements typically include terms outlining the total cost, interest rates, and payment schedules, making it easier for individuals or businesses to budget for the expenditure. It contrasts with other financing options, such as lease financing, which does not offer ownership at the end of the term; loan financing, which may involve a one-time lump sum payment rather than regular small payments; and grant financing, which does not require repayment and is generally provided for specific purposes or projects.

The type of financing that involves making small, regular payments on a larger amount borrowed is hire purchase. In a hire purchase agreement, the borrower makes initial payments to use an asset, like a vehicle or machinery, with the intent to eventually own it after all payments are completed. This arrangement allows the borrower to immediately utilize the asset while spreading the cost over time, effectively making it more manageable.

Hire purchase agreements typically include terms outlining the total cost, interest rates, and payment schedules, making it easier for individuals or businesses to budget for the expenditure. It contrasts with other financing options, such as lease financing, which does not offer ownership at the end of the term; loan financing, which may involve a one-time lump sum payment rather than regular small payments; and grant financing, which does not require repayment and is generally provided for specific purposes or projects.