“Deferred Payments” or “Cash”

Dominion, Volume 21, Issue 84, 7 January 1928, Page 15

“Deferred Payments” or “Cash”

Arguments For and Against the Hire Purchase System

HE big development of the hire-purchase system or deferred T payments is causing some discussion between the advocates of these plans and those who adopt the motto, * Pay as you go, (says “Public Opinion”). A Government Minister urged the need of caution in a recent speech, and the facts, and figures, and arguments quoted below on all phases of the subject are therefore of timely interest. “The available evidence,” declares the “Westminster Bank Review,” “shows fairly conclusively that the extent to which resort is made to deferred payment methods varies considerably from industry to industry and, on the demand side, from one stratum of society to another. The automobile industry has been a pioneer as regards this form of selling policy in its present phase. “According to Dr. Plummer, a Pennsylvania University economist, no less than 75 per cent, of the products of this industry arc sold on hire purchase, about £300,000,000 worth of motor-cars being ‘driven on credit’ at any given moment. “Next in importance come the furniture trades, responsible tor just under 20 per cent, of the total instalment debt. Other trades relying on the system to a greater or less extent are gramophone making (which markets about four-fifths of its output in this way), electrical washing machinery (which markets about three-fourths), vacuum. cleaners (about two-thirds), and jewellery (one-fourth), while the majority of pianos, sewing machines, wireless sets, and electric refrigerators reach their purchasers by way of a deferred payment contract. “Something like £28,000,000 of clothing is sold annually in the same way, but in this case the term of payment is short. ‘ The “Westminster Bank Review.” in passing general judgment, says:— . f “A larger experience of its effects is desirable, however, be tore scientific observations can confidently pronounce upon its merits or defects. Evidence is required in particular of its characteristics during' a period of trade depression. This evidence has not been provided, up to the present, in the United States, where the system has reached its fullest development, and it would be well, therefore, to regard any conclusions based on present experience as necessarily tentative. ’ “The disadvantages of the hire-purchase system are not difficult to delect,” asserted the “Yorkshire Post.” “In many cases the apparent ease with which a coveted article can be obtained leads people into making' a purchase which they cannot really afford. The temptation to snobbery to outbid some envied neighbour by acquiring a particular article of luxury on a small initial payment, with small instalments to follow, is great. “Once the commitment is undertaken the payments may in due course have to be made in circumstances of unforeseen stress, and will only be met by allowing other commitments to be neglected. The motorcar’or the piano may be retained only at the expense of the grocer or the butcher, whose weekly or monthly bill, which may be left over, will be regarded as a secondary consideration to the instalment which must be paid in order to save the pride of the debtor from the pain ol: parting with a cherished possession. “The system thus leads in some cases to debts. It also has the disadvantage of leading young people to tie up income that may be needed for emergency use. Certain critics have also urged that the enjoyment of a possession before it has been earned has a bad moral reaction. With this suggestion we have little sympathy. An article purchased under deferred payments is bought by an initial payment. Its first use has thus been earned. So with each succeeding period of payment. “The objection was never raised in the case of the enjoyment of a home bought through a society by deferred payments, where the moral effect is precisely the same. Beyond the disadvantages of the system which we have indicated other arc hard to find. The advantages seem to outweigh them all.

‘ The primary advantage of the system is that it is a gieat incentive. It trains the purchaser into the habit of acquiring possessions of lasting value with money which would otherwise be frittered away in ephemeral pleasures. In addition, it makes possible a full.ei and more spacious life than could be obtained if purchasers, before acquiring- the commodities to be enjoyed, had to wait until the price was saved. “The easy example of this effect is that of the newly furnished home of young people. Without deferred payments one or two other courses would be open to the prospective home-builders, to wait until sufficient capital had been saved or to borrow from accommodating parents, the second of these courses being possible to but few. The waiting for a sufficient fund of capital only means that for that period the savers have no effective use from their money. Hire-purchase makes their money effective in the best way immediately it is available for their use. It also enables a better and more tasteful home to be made. “All this applies, let it be clear, only in the case of non-luxuiy buying. It is the type of purchase and not the system which, to our mind, is the test of the merits of the method. A system which tempts people to the thrifty acquirement of the reasonable amenities and necessaries of civilised living is so far good. A system which tempts people thriftlessly to acquire luxuries for display or the gratification of a merely snobbish ambition is so far bad. ■ “The system of deferred payments, or of hire-purchase, may do either. It is, therefore, dangerous to condemn or commend it as a system per se. But, on the balance of advantages as they have revealed themselves in this country, the system would seem to be a natural development to new users of the ordinary credit system, with an equal proportion of good and bad effects. Its use is good; its abuse is bad. “What is use and what is abuse must, of necessity, be left to the private judgment of the individual vendor and the purchaser, but, unless wc underrate the business acumen of traders and the common sense of t.ie generality of people, abuse of the system is not likely in this country to outweigh legitimate use.” “Something like 16,000,000 hire purchase agreements are regularly in force annually, and the number of new agreements effected every year is about 4,000,000. These figures are double what they were in 11)07.” “This remarkable growth of ‘deferred payment’ system was revealed by Mr. S. J. Sewell, secretary of the Hire Traders’ Pflbtection Association, which represents the leading firms engaged in this type of business,” says the “Weekly Dispatch. “Comparing the volume of trading in- Britain as compared with America, where, published figures reveal, retail sales financed by instalments in a year total £.1,200,000,000 and the ‘instalment debt’ at any given moment (exclusive of transactions in houses, life insurance and stocks) is £550,000,000, Mr. Sewell said:— “ ‘There are no collected statistics in this country, but with due regard to the difference in population, the amount of hire purchase business is in percentage the same in this country as in America. (This would put the retail sales in the neighbourhood of £400,000,000 and t.ie instalment debt at approximately £180,000,000.) “ ‘Eighty per cent, of motor cars, 80 per cent, of pianos and gramophones, 50 per cent, of furniture, and 10 per cent, of jewellery are bought on the hire system. Houses come more under mortgage business and the percentage is difficult to estimate. Hire purchase of wireless sets, owing to the efforts of mass-production manufacturers, is growing enormously. “ ‘Without hire purchase to-day there would be very, very little work for house furnishers, piano manufacturer's, and cycle, motor car, and similar firms. Hire purchase keeps factories going in this country. “ ‘Our bad debts average only from S per cent, to 3 per cent., and the number of cases in which it is necessary to take proceedings is negligible considering the huge volume of business done.