Meaning of Hire Purchase

7/26/2019 Meaning of Hire Purchase

1/4

1.3 Meaning and Concept of Hire-purchase system

Hire-puchase system is a special system of purchase and sale of goods. Under this systempurchaser pays the price of the goods in instalments. The instalments may be annual, six

monthly, quarterly, monthly fortnightly etc. Under this system the goods are delivered to thepurchaser at the time of agreement before the payment of instalments but the title on the goods istransferred after the payment of all instalments as per the hire-purchase agreement. The special

feature of a hire-purchase transaction is that the payment of every instalment is treated as the

payment of hire charges by the purchaser to the hire vendor till the payment of the last

instalment.. After the payment of the last instalment, the amount of various instalments paid isappropriated towards the payment of the price of the goods sold and the ownership or the goods

is transferred to the purchaser. Thus hire-purchase means a transaction where the goods are sold

by vendor to the purchaser under the following conditions

the goods will be delivered to the purchaser at the time of agreement.

the purchaser has a right to use the goods delivered.

the price of the goods will be paid in instalments.

every instalment will be treated to be the hire charges of the goods which is being used by

the purchaser.

if all instalments are paid as per the terms of agreement , the title of the goods is

transferred by vendor to the purchaser.

if there is a default in the payment of any of the instalments, the vendor will ta!e away

the goods from the possession of the purchaser without refunding him any amount

received earlier in the form of various instalments.

1.4 Characteristics of Hire-purchase system

"efore discussing the characteristics of hire-purchase system, we must !now what is a hire

purchase agreement and what are the contents of a hire-purchase agreement. Hire-purchaseagreement means a contract between the hire vendor and the hire purchaser regarding the sale ofgoods under certain conditions. Usually every hire-purchase agreement shall contain the

following terms

the cash price of the goods, cash price means the price at which goods may be purchased

against cash payment.
http://wikieducator.org/File:SLMsections.png


2/4

the hire-purchase price, hire purchase price means the total amount which is payable by

the hire-purchaser under the agreement.

the date on which the hire-purchase agreement will commence.

the description of the goods that will be delivered to the hire-purchaser at the

commencement of the agreement.

the number of instalments to be paid by the hire-purchaser along with the amount of each

instalment and the date of payment of each instalment.

the down payment if any, the down payment means the amount which is required to be

paid by hire-purchaser to the hire vendor at the time of commencement of hire-purchase

agreement.

the rate interest charged by the hire vendor #optional$.

Characteristics of Hire-Purchase System

The characteristics of hire-purchase system are as under

Hire-purchase is a credit purchase.

The price under hire-purchase system is paid in instalments.

The goods are delivered in the possession of the purchaser at the time of commencement

of the agreement.

Hire vendor continues to be the owner of the goods till the payment of last instalment.

The hire-purchaser has a right to use the goods as a bailer.

The hire-purchaser has a right to terminate the agreement at any time in the capacity of a

hirer.

The hire-purchaser becomes the owner of the goods after the payment of all instalments

as per the agreement.

%f there is a default in the payment of any instalment, the hire vendor will ta!e away the

goods from the possession of the purchaser without refunding him any amount.

Self-Assessment Questions SAQs! -1

#&$ 'efine Hire-purchase system in your own words. # &(( words $
http://wikieducator.org/File:SLMsaq.gif


3/4

#)$ *tate any +% important elements of Hire-purchase agreement.

#$ *tate whether the following statements are True or +alse

#a$ The hire vendor has to refund the amount received after repossession of goods due to default

in payment by hire-purchaser.

#b$ Under hire-purchase system the purchaser becomes the owner of the goods immediately afterthe down payment.

#c$The last instalment under hire-purchase system comprises cash price only.

#d$ Under hire-purchase system the buyer does not charge the depreciation on the asset till he

becomes the owner.#e$ %nterest is calculated on the hire purchase price at the given rate of interest.

1." #ifference $et%een Hire-purchase system and&nstalment payment system

%nstalment /ayment *ystem is system of purchase and sale of goods in which title of goods is

immediately transferred to the purchaser at the time of sale of goods and the sale price of thegoods is paid in instalments. %n the event of default in payment of any instalment, the seller has
http://wikieducator.org/File:SLMsections.png


4/4

no right to ta!e bac! goods from the possession of the purchaser. He can file a suit for the

recovery of the outstanding balance of the price of goods sold. The followings are the differences

between Hire-purchase system and %nstalment payment system

%n Hire-purchase system, the transfer of ownership ta!es place after the payment of all

instalments while in case of %nstalment payment system, the ownership is transferredimmediately at the time of agreement.

%n Hire-purchase system, the hire-purchase agreement is li!e a contract of hire though

later on it may become a purchase after the payment of last instalment while in

%nstalment payment system, the agreement is li!e a contract of credit purchase.

%n case of default in payment , in Hire-purchase system the vendor has a right to bac!

goods from the possession of the hire-purchaser while in case of %nstalment payment

system, the vendor has no right to ta!e bac! the goods from the possession of the

purchaser0 he can simply sue for the balance due.

%n Hire-purchase system, if the purchaser sells the goods to a third party before the

payment of last instalment, the third party does not get a better title on the goodspurchased. "ut in case of %nstalment payment system, the third party gets a better title onthe goods purchased.

%n Hire-purchase system the provisions of the Hire-purchase Act apply to the transaction

while in case of %nstalment payment system, the provisions of *ale of 1oods Act apply to

the transaction.

Documents

Meaning of Hire Purchase