May 30, 2025

Hire Purchase in Nigeria: Your Ultimate Guide to Ownership

by Eko Solicitors

Introduction

Hire purchase in Nigeria is a pivotal financial instrument in Nigeria, enabling individuals and businesses to acquire assets through installmental payments while deferring full ownership until the final payment. This system is particularly significant in a developing economies with small scale businesses like Nigeria, where access to traditional credit(loan) is often limited.

This article explores the legal framework, benefits, challenges, and future prospects of hire purchase in Nigeria.

In Nigeria, hire purchase is a contract of hire, not a sale, where a hirer can acquire goods by paying by installments over a period of time subject to the hire purchase agreement signed by the parties. The Hirer does not become the owner until the final installment is paid. Hire purchase agreements are regulated by the Hire-Purchase Act, 1965.

WHAT IS HIRE PURCHASE IN NIGERIA

Under the hire purchase agreement, the buyer (hirer) pays an initial deposit and agrees to pay by installments(weekly, monthly e.t.c) over a fixed period of time agreed upon and executed. Ownership transfers to the hirer only after the last payment. Common items financed under the hire purchase agreement includes vehicles, electronics, generators, and agricultural machinery. For example, a Nigerian family might purchase a generator which is an essential need due to the unreliable power supply in Nigeria, through manageable monthly payments.

Pursuant to Section 20(1) of the hire Purchase Act, a contract of hire purchase is:

The bailment of goods in pursuance of an agreement under which the Bailee may buy the goods or under which the property in the goods will or may pass to the Bailee.

A contract of hire purchase is one under which an owner of goods lets them out on hire to another person the hirer on the condition that the hirer should make stipulated installmental payment called rent, usually in line with the above provision the hirer will become the owner when he completes payment of the stated installments or when after completing payment, he exercises the “option to purchase” by paying a nominal option fee.

LEGAL FRAMEWORK OF HIRE-PURCHASE

The Hire Purchase Act of 1965 (Cap H4, LFN 2004) governs HP agreements in Nigeria. It outlines terms such as mandatory written contracts, disclosure of interest rates, and repossession rights. However, the Act is considered outdated, lacking provisions for modern digital transactions and consumer protections prevalent in other jurisdictions.

PROVISIONS EMANATING FROM THE HIRE PURCHASE ACT 1965

This Act was enacted in the year 1965. At the time of enactment, the Act applied only to the Federal Capital Territory of Lagos. It was subsequently given national application by virtue of the Hire Purchase (Application Act) 1966. However, application of the law didn’t start until October 1 1968 by virtue of the Hire Purchase (Appointed Day) Order 1968. the act made provisions for the following:

It guarantees the hirer’s complete participation in the transaction’s creation.
It added several implied terms that limited the owner’s contractual freedom. Additionally, it forbids the use of certain conditions that are harmful to the employer.
The statute limited the liabilities that would result from the hirer’s termination of the arrangement, but it also gave him the authority to do so.
The Act restricts the power of the owner to repossess the goods indiscriminately. He can only gain possession of the goods when the hirer has defaulted in payment or in breach of the agreement.
Certain warranties and conditions were implied by the Act. Any attempt to omit these conditions and guarantees is likewise nullified.

ALSO READ: PROTECTING YOUR BRAND ONLINE: NIGERIAN DOMAIN NAME REGISTRATION AND TRADEMARK LAWS.

TYPES OF ITEMS PROTECTED BY THE HIRE PURCHASE ACT

According to the provision of S.1 of the Hire Purchase Act, the following are the classes of goods that are covered by the provisions of the Hire Purchase Act:

Every hire purchase deal in which the commodities’ total cost is less than two thousand naira.
Any and all agreements pertaining to cars and other vehicles.

Section 20 of the Hire Purchase Act provides a clear definition of a motor vehicle:

“a mechanically propelled vehicle intended for or adapted for use on road or for agricultural purposes.”

In respect of other goods that aren’t covered by the above provision, the English Common Law and Equity would apply.

CHARACTERISTICS OF A HIRE PURCHASE AGREMENT

There are a handful of reasons that informed the adoption of Hire Purchase in Nigeria. Some of them are:

Offer and Acceptance: The hirer offers to hire the goods and the owner accepts. The mere signing of the hire purchase agreement is enough to constitute acceptance of the agreement.
Consideration: The consideration in a hire purchase agreement is usually in the form of periodical payment.
Capacity: The general rule of capacity in the law of contract also applies to a hire purchase agreement. Thus, an infant cannot be bound in a contract of hire purchase unless it is a contract for necessaries.

MOTIVE FOR NIGERIA’S ADOPTION OF HIRE PURCHASE

The following are some of the factors that influenced Nigeria’s adoption of hire purchase:

It gives people who need a certain product but lack the necessary finances the chance to get it. Such individuals may make a deposit under hire buy and settle the balance over a number of installments.
Another reason is that it assists producers in selling their inventory profitably so that they don’t accumulate. A financier intervenes in this case, pays the manufacturer, and then executes hire purchase agreements with the clients.
Another reason is due to the fact that hire purchase agreements are not within the purview of the old Money Lenders Act 1939. According to Section 2C of the Act, Money Lenders excluded:

Any person bona fide carrying on any business not having for its primary object the lending of money.

Hire purchase contracts plainly are not for the purpose of lending money. In the Olds Discount Ltd. v. Play fair Ltd. case, the courts reaffirmed this.

CONCLUSION

Hire purchase in Nigeria bridges the gap between aspiration and ownership, offering vital access to goods despite systemic challenges. Stakeholders must advocate for regulatory updates and financial literacy to maximize its potential, ensuring HP remains a sustainable tool for national development.

N.B: DO CONTACT A LAWYER TO ASSIST IN EXECUTING YOUR HIRE-PURCHASE AGREEMENT

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