It explains about Hire Purchase System..

1. R. MOHANA RUBAN
ASSISTANT PROFESSOR OF COMMERCE,
SRM Institute of Science and Technology, Ramapuram.

2.  Hire purchase is an arrangement for buying
least expensive consumer goods, where the
buyer makes an initial down payment and
pays the balance plus interest in installments.
 With hire purchase agreements, the ownership
of the merchandise is not officially transferred
to the buyer until all the payments have been
made.

3.  Periodic installment payments.
 Immediate possession of goods by the buyer.
 Ownership of goods remains with the vendor until the
payment of the last installment.
 Vendors right to repossess the goods in the event of default
committed by the buyer.
A transaction of finance whereby goods are
bought and sold as per the terms & conditions
specified below is known as hire purchase
finance.

4.  Hire purchase is based on an agreement in writing.
 The buyer takes possession of the goods at the time
of entering into the contract.
 Each instalment is treated as hire charges.
 Ownership of the property is transferred from the
hire vendor to the hire purchaser on the payment of
last instalment by the hirer.
 The purchaser has the right to terminate the
agreement at any time before the property passes.

5. The Hire Purchase Act, 1972 defines a hire purchase agreement
as “an agreement under which goods are let on hire and under
which the hirer has an option to purchase them in accordance
with the terms of the agreement and includes an agreement
under which:
(i) Possession of goods is delivered by the owner there off to a
person on a condition that such person pays the agreed
amount in periodic payments, and
(ii) The property in the goods is to pass to such person on the
payment of the last of such installments, and
(iii) Such person has a right to terminate the agreement at any
time before the property so passes.”

6. Hire purchase agreement has to be in writing and
signed by both the parties. The agreement must
contain:
Description of goods
Hire purchase price of the goods
The date of commencement of the agreement
The number of installments, amount and due
date.

8. 1. Transfer of ownership
 In hire purchase financing, the ownership of the property is
transferred to the hirer on the payment of the last installment.
 The ownership of the property vest with the finance company,
the lessor, and it is never transferred to the lessee, the user.
2. Suitability
 Lease financing is not suitable for the low capital enterprises
which is desire to show a strong asset position.
 HP financing is highly suitable for the low capital enterprises
which is need to show a strong asset position.

9. 3. Down payment
 Down payment is required to be made for acquiring
the asset, to the extent of 20 – 25 percent on the cost
of the asset.
 No down payment is required for acquiring the use of
the leased asset.
4. Buyers count
 In hire purchase, the goods or property is sold once
and there cannot be more than one buyer.
 But in operating lease, though the lessor can be one
person, there can be a number of lessees.

10. 5. Relationship in agreement
 In a hire purchase financing, the relationship between
the seller and the buyer will be that of owner and
hirer.
 But the relationship in a lease agreement is that
of lessor and lessee.
6. Period of Agreement
 Period of Hire Purchase agreement is longer as
valuable goods or properties are purchased.
 But in Leasing, the period of lease will be of shorter
duration as technological changes will affect the
lessee.

11. 7. Magnitude
 HP is used as a source of finance for low cost assets
such as automobiles, office equipments, consumer
articles, etc
 Leasing is used as a source of finance for acquiring
high cost assets such as machineries, ships, airplanes,
etc
8. Salvage value
 The hirer can claim benefit of salvage value as the
prospective owner of the asset.
 The lessor, and not the lessee, has the right to claim
the benefit of salvage value.