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I understand, and am not asking about, the meaning of 'hire purchase':

A system by which one pays for a thing in regular instalments while having the use of it. North American term instalment plan

Rather, why were 'hire' and 'purchase' were adopted to describe instalment-payment plans?

'hire' already signifies 'obtainîng the temporary use of (something) for an agreed payment' that differs from an instalment plan, where the payor pays for the permanent use of something after the last instalment. So using 'hire' to mean 'lease' is not only inaccurate, but causes ambiguity and confusion.

'purchase' is obviously inaccurate. The payor hasn't purchased anything as she's still paying instalments, and the payee probably still holds the title of the object.

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    As you describe, hire on its own doesn't accurately describe the transaction, because we end up with having purchased the article. Likewise, purchase on its own is inaccurate because we start by hiring the object. So someone figured out that since we start of by "hiring" and end up with "purchasing" something, we might as well call it "hire purchase". I am not sure I understand your question. A red-white-blue flag is not a red flag, nor a white flag, nor a blue one, and yet everyone understands what it is or why it is called red-white-blue.
    – oerkelens
    Jan 14, 2019 at 6:39
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    I hadn't been familiar with the term hire purchase before—having only known the US instalment plan (as the reference mentions). Before I made that connection, I'd been thinking of the equivalent rent-to-own (or lease-to-own) housing arrangements. But I see no confusion over the term hire purchase. As a compound noun, it makes sense to me.
    – Jason Bassford
    Jan 14, 2019 at 6:50
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    It seems to be short for "hire in order to purchase", which is very similar to the "rent-to-own" phrase that we use. That makes it clearer that you don't own the item immediately, but will once the lease is fulfilled.
    – Barmar
    Jan 15, 2019 at 1:07
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    For AmE, the corresponding term is 'rent-to-own'. An installment plan, which is entirely intended for ownership, is also known as 'lay-away', which is not as common nowadays as the more scammy 'rent-to-own'. "I bought this couch on layaway. It took me five months of payments before I could move it into my apartment."
    – Mitch
    Jan 17, 2019 at 17:21
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    @JasonBassford The term, and I suspect the practice too, has to some extent gone out of fashion, since the advent of credit cards. Having bought my first car that way, over half a century ago, my recollection is that you paid monthly "hire" instalments for e.g. 36 months. And at the end you had the right to buy it for £1. Title remained with the finance company, who had the right of repossession if you failed to make payments.
    – WS2
    Jan 17, 2019 at 17:24

2 Answers 2

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There is a difference between a hire purchase agreement and a credit agreement and the definition given in the original post does not accurately describe a hire purchase agreement, often called HP.

To understand what an HP agreement is we need to know what a hire agreement, a credit agreement and a hire purchase agreement are.

A simple hire or rental agreement gives the hirer the right to use an asset so long as they make the hire payments but the owner retains ownership of the asset. The agreement can either be open-ended or subject to a lease with a time limit.

A credit agreement is one where money is advanced to someone so that they can buy an asset. There is a schedule of payments which, if it is complied with, means that the lender will be paid the amount leant plus a previously agreed amount of interest. The asset immediately becomes the property of the borrower but it is used as security for the loan and so can be reposessed if the borrower fails to make the payments.

A hire purchase agreement is a hire agreement for a fixed period of time with a right extended to the hirer to purchase the item outright for a fairly nominal sum at the end of the term. The size and number of the hire payments and the size of the final payment are calculated so that the hirer receives the price of the item plus a profit usually very similar to the interest that would have been charged had the agreement been a credit agreement. The point is that the asset remains the property either of the vendor or the HP company until the final payment has been made when the title to the asset passes to the hirer.

The etymology of the term "hire purchase" is, therefore, quite simple. A hire purchase agreement is one where the customer hires the asset for an agreed period then buys it for a pre-arranged nominal sum at the end of rental period.

Interestingly hire purchase agreements can be regarded as not violating strict religious objections to lending or borrowing money at interest (also known as usuary) and so are very similar to "Islamic mortgages" offered by Islamic banks.

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  • Spot on. A minor addition: HP is largely historical and where HP was often offered in the past, credit is now often available.
    – tmgr
    Jan 18, 2019 at 1:02
  • @tmgr Thanks for that, I agree that HP has largely been replaced by cash loans of various descriptions. However I believe that the rise of Islamic institutions in the west might see a revival of HP-style agreements, particularly Islamic mortgages which are quite similar in some ways. Do you think that the initial prevalence of HP might have been influenced by Victorian Christian ambivalence towards usuary?
    – BoldBen
    Jan 18, 2019 at 19:17
  • The comparison with Islamic mortgages wouldn't have occurred to me - and it's an astute one. The prohibition on interest seems to have gone out with Protestantism: if only faith can save, in this world you can strip your fellow man to the bone as long as it's all signed and proper. This fits with the laissez-faire caveat-emptor outlook of Victorian society alright! Another way to put it might be as the working class emerges with the industrial revolution with newfound purchasing power, HP arose as a way for the bourgeoisie to get their meagre wages back off them... with added value.
    – tmgr
    Jan 18, 2019 at 22:22
  • @tmgr I guess there was an element of avoiding the association with 'uncle' the pawnbroker. The upper working and lower middle classes would have seen going to him as a failure and a disgrace.
    – BoldBen
    Jan 19, 2019 at 16:32
  • @BoldBen, you probably wanted to say usury in the last sentence.
    – jsw29
    Jan 23, 2019 at 0:11
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I think the equation of 'installment plan' with 'hire purchase' is incorrect. In hire purchase agreements there is no commitment to own the item. See https://www.financial-ombudsman.org.uk/publications/technical_notes/goods-and-services-bought-with-credit.html#2a where it says "Hire purchase agreements are consumer credit contracts that give the consumer the right - but not the obligation - to buy the goods at the end of the hire purchase term."

This is distinct from paying for an item in installments, where the intention is to own the item but to spread the cost.

In the UK, it used to be common for students to rent a washing machine or television set from Radio Rentals (a chain) during term time under a hire purchase agreement. The students did not want to actually own the item (though I suppose it happened sometimes). The washing machine remained the property of the shop, and went back to the shop after the exams.

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