Hire Purchase -
Meaning:
A
trader could sell goods either for cash or for credit. For goods sold on
credit, the payments may be made by the buyer in lump sum on a future date, or
in installments spread over for a specified period of time. When goods are sold
on credit, for which payment is made by the buyer in installments over a period
of time, it is called purchase system or installment system.
Hire
Purchase System defers to the system wherein, the seller of goods delivers the
goods to the buyer without transferring the ownership of goods. The payment for
the goods will be made by the buyer in installments. If the buyer pays all the
installments, the ownership of the goods will be transferred, on payment of the
last installment. However, if the buyer does not pay for any installment, the
goods will be repossessed by the seller and the money paid on earlier
installments will be treated as hire charges for using the goods. So, under
this system, the transaction may result in purchasing of goods by the buyer or
in hiring the goods. Hence, the system is called Hire Purchase System.
Characteristics of
Hire-Purchase System
The characteristics of
hire-purchase system are as under
a)
Hire-purchase is a credit purchase.
b)
The price under hire-purchase system is paid in
installments.
c)
The goods are delivered in the possession of the
purchaser at the time of commencement of the agreement.
d)
Hire vendor continues to be the owner of the goods
till the payment of last installment.
e)
The hire-purchaser has a right to use the goods as a
bailer.
f)
The hire-purchaser has a right to terminate the
agreement at any time in the capacity of a hirer.
g)
The hire-purchaser becomes the owner of the goods
after the payment of all installments as per the agreement.
h)
If there is a default in the payment of any
installment, the hire vendor will take away the goods from the possession of
the purchaser without refunding him any amount.
Differences between Hire Purchase System and Installment
Purchase System:
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Hire-Purchase System
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Installment Purchase
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It is a
contract of hiring.
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It is a
contract of sale.
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It is
transferred by seller to buyer only after payment of all installments.
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It is
transferred by seller to buyer, immediately on signing the contract.
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In this
case, the buyer is like a bailee
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In this
case, the buyer is not in the position of a bailee
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Such risk
is on the seller.
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Such risk
is on the buyer.
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On default
of payment of any installment by the buyer, the seller can repossess the
goods.
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On default
and payment of any installment by the buyer, seller cannot repossess the
goods, but can file a suit in the court of law against the buyer for the
recovery of unpaid price.
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The buyer
can exercise the option of return of goods.
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The buyer
cannot exercise the option of return of goods.
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The buyer
cannot dispose the goods, until the payment of last installment. If disposed,
the third party buyer does not get a better title.
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The buyer
has the right to dispose the goods, even if all installments are not yet
paid.
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