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ANJALI.M & AMRITHA
4 th SEM M COM
Concept of hire purchase
Hire purchase is the mode of financing the price of the
goods to be sold on future date. In a hire purchase
transaction, the goods are let on hire, the purchase price is
to be paid in instalments and hirer is allowed an option to
purchase the goods by paying all the instalments. In a hire
purchase transaction the goods are let out on hire by a
finance company to the hirer .The buyer is required to pay
an agreed amount in periodical instalments during a given
period. The ownership of the property remains with creditor
and passes on to hirer on the payment of the last instalment.
MEANING AND DEFINITION
A transaction of finance whereby goods are bought and sold
as per the terms and conditions specified below is known as hire
A. Payment of periodic instalments.
B. Immediate possession of goods by the buyer.
C. Ownership of goods remaining with the vendor until the
payment of last instalment.
D. Vendors right to repossess the goods in the event of default
committed by the buyer.
E. Treatment of each instalment as hire charge till the
payment of last instalment.
According to the Hire Purchase Act of 1972 , The term Hire
Purchase can be defined 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 agreement,
and it includes;
1. Possession of goods is delivered by the owner thereof to a
person on the condition that such person pays the agreed
amount in periodic payments.
2. The property of the goods is to pass such a person on the
payment of last of such instalment.
3. Such a person has a right to terminate the agreement any
time before the property so passes.
Hire purchase is based on an agreement in writing.
The buyer takes possession of the goods at the time of
entering into contract.
Each instalment is treated as hire charges.
Ownership transfer from buyer to seller on the payment
of last instalment.
The purchaser has the right to terminate the agreement any
time before the property passes.
Hire purchase has to be in writing and signed by both parties. The
agreement must contain:
Description of the goods
Hire purchase price of the goods.
The date of commencement of the agreement.
The number of instalments, amount and due date.
Terms used in Hire purchase agreements
Hire purchaser : A hire purchaser is a person who possess the
goods under hire purchase agreement.
Hire vendor: Is a person who sells the goods under hire purchase
Cash price: It is the price of the goods which is sold under contract
Hire purchase price: It is the price at which goods are sold under
hire purchase system. It includes cash price of the goods and
Instalment money: It is the part of hire purchase price paid by the
hire purchaser . In periodic intervals.
Down payment: It is the initial payment made by the hire
purchaser to the hire vendor at the time of entering in to
hire purchase agreement.
Hire charge: It refers to the difference between hire
purchase price and cash price.
LEASING HIRE PURCHASE
OWNERSHIP In lease, ownership lies
with the lesser. The lessee
has the right to use the
equipment and does not
have an option to purchase
In hire purchase, the hirer has
the option to purchase. The hirer
becomes the owner of the asset/
equipment immediately after the
Leasing is a method of
financing business assets
Hire purchase is a method of
financing both business assets
and consumer articles
In leasing, depreciation
and investment allowance
can be claimed as an
expense by the lesser
In hire purchase depreciation
and investment allowance can
be claimed by the hirer.
TAX BENEFITS The entire lease
rental is tax
Only the interest
components of the
instalments are tax
SALVAGE VALUE The lessee, not being
the owner of the
assets and not enjoy
the salvage value of
The hirer, in
purchase being the
owner of assets and
enjoy the salvage
value of assets
DEPOSIT The lessee is not
required to make
The hirer is required
to deposit 20% of
MAINTENANCE The maintenance of
leased asset is
responsibility of the
Here the cost of
maintenance of hired
assets is to be borne by
the hirer himself
The leased assets are
shown by way of
The assets on hire
purchase is shown in the
balance sheet of the hire.
DURATION Lease agreements are
done for longer duration
and for bigger assets like
land, property etc.
Hire Purchase agreements
are done mostly for
shorter duration and
cheaper assets like hiring
a car, machinery etc.
Rights of hirer
Right of protection: It is not possible for a hire vendor to terminate
the hire purchase agreement on account of default in payment
of hire charges by the hirer or due to unauthorised act , Unless
the hirer gives notice in writing to the hirer in this regard.
Right of Notice: When the ire charge are weekly, or a period less
than that, one week notice is to be given, and in all other cases a
two week notice is to be given.
Right of repossession : The right of repossession is not available to
the hire vendor unless sanctioned by the court in the following
a. One half of the price has been paid where the hire
purchase price is less than Rs. 15000 ( Rs 5000 in case of
b. Three fourth of the price has been paid where the hire
purchase price is not less than Rs 15000(Rs 5000 in case of
c. Three fourth or such higher proportion , not exceeding nine
tenth where the hire purchase price is not less than Rs 15000.
Right to excess amount: The hirer has the right to
obtain any amount in excess of the value of goods
repossessed , over and above the amount of
instalments payable by the hirer , in the event of a
To pay the hire instalments.
To take reasonable care of the goods ( if the hirer damages the
goods by using them in a non standard way, he or she must
continue to pay instalment and , it appropriate ,compensate
the owner foe any loss in asset value)
To inform the owner where the goods will be kept.
A hirer can sell the products if, and only if, he has purchased
the goods finally or else not to any other third party.
Problems of hire purchasing companies in India
No separate legislations.
Poor government support.
Diminishing tendency of price.
In a hire purchase transaction the goods are let out on
hire by a finance company to the hirer .The buyer is
required to pay an agreed amount in periodical
instalments during a given period. The ownership of the
property remains with creditor and passes on to hirer on
the payment of the last instalment.