Financial Maths Grade 9: Hire Purchase #Finance

hello everyone so in this lesson we’re going to be talking about something called higher purchase so how does it work let’s see so let’s say there’s this cool laptop that we would like to buy you walk into the shop one day and the laptop is selling for 10 000 rand

what that means is that if you give the shop owner 10 000 rand you take that laptop and it is yours or there is another option you can pay a small amount for the laptop which we call the deposit so the deposit is a small amount that you pay on the day that you are in the shop and then the shop

owner is going to be a little bit upset with you because you’re not giving him the full 10 000 round you’re only giving a small amount so the amount that you have not paid they are going to penalize you by adding on interest and so you’re going to end up paying more let’s

see how it works so first option you could buy it now so if you buy now then all you’re going to spend is 10 000 rent that is it it’s finished if we use the higher purchase option then it works like this you pay the shop owner a small amount which we call a deposit and that’s

going to be 10 10 of what well 10 of the original amount so 10 of ten thousand if you wanted to work that out would say ten over a hundred times by one hundred thousand and that’s going to give you a thousand rand so you need to give the shop owner a thousand rand alright so please imagine

yourself handing over the 1000 rand to the shop owner okay so let’s say this is the shop owner over here but he’s a little bit upset with you because you haven’t given him the full amount okay so you’ve given him a thousand rand so how much do you still owe on the laptop

well that laptop is ten thousand rand and if you minus the one thousand rand you still owe this guy nine thousand rand so he’s a little bit upset with you because you still owe him nine thousand rand so what he’s gonna do is he is gonna take this nine thousand rand and he’s going

to add interest he’s gonna add money on to that so that you end up having to pay him a little bit more that’s fair you’re not giving him the full amount so he’s letting you take the laptop for a thousand rand but he wants you to pay the 9 000 run back but you’re also

going to pay a little bit more and you’re going to do it over three years so he’s going to add interest on and he’s going to do that using simple interest remember we’ve learned about simple and compound higher purchase is always simple please remember that higher purchase

simple higher purchase simple higher purchase simple so we use the simple interest formula and we’re not going to use 10 000 as the starting amount this person is only gonna they’re only upset because of the 9 000 rand that you haven’t paid so they’re going to take that 9

000 rent and they’re going to add interest now in the advert they said 12 per year so that’s 12 over 100 or 0.12 and then that’s going to be over a three year period and so let’s see what that 9 000 rand is going to turn into wow twelve thousand two hundred and forty round

so imagine this guys you’ve already paid a thousand rand then the man takes that nine thousand round that you still owe him and he says hey by the way i’m turning that nine thousand rand into twelve thousand two hundred and forty rand crazy right but you get to pay it off over three

years and typically you will pay per month so in three years there is 36 months and so you’re gonna pay this man twelve thousand two hundred and forty rand but if you’re paying it every month then let’s see how much you would actually have to pay per month 340 rand and so 340 rand

per month is very cheap and that is why a lot of people choose the higher purchase option because it seems like it’s cheaper but you actually spending more on the laptop how much did this person actually spend on the laptop well what happened is you spent a thousand round already okay so the

total is going to be the 1000 round plus that 9 000 rand turned into twelve thousand two hundred and forty rand so you gotta add that on and so you are gonna end up spending thirteen thousand two hundred and rand on a laptop that is only worth 10 000 rand so the disadvantage is that you’re

gonna pay more for the laptop but the advantage is that each month you’re only going to have to spend 340 round