Hire Purchase
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Meaning
Features of H.P.
Legal Position
Terms of Agreement
Contents of H.P. Agreement
H.P. Vs Credit & Installment Sale
H.P.& Leasing
Origin & Development
Banks & H.P. Business
Meaning
Hire purchase is new method of selling. In
this the ownership of goods is remains with the
creditors until the last installment is paid but the
possession is passes immediately to hirer. The
one who purchases property is known as hirer &
the one who sells it is called creditor.
Features of Hire Purchase
¾ Buyer takes possession of goods immediately &
agrees to pay the total hire purchase price in
installment.
¾ The each installment is treated as hire charges.
¾ The ownership of goods passes from seller to
buyer on the payment of last installment.
¾ In case of default, seller has right to repossess the
goods & forfeit the amount already received.
¾ Hirer has also right to terminate the agreement
any time before the property passes.
Legal Position
The Hire Purchase Act 1972, defines a
hire purchase agreement, an agreement
under which goods are let on hire & under
which hirer has an option to purchase
them in accordance with the terms of
agreement.
Terms of Agreement
¾ Payment to be made in installment.
¾ Possession is delivered to the purchaser at the
time of entering into contract.
¾ The ownership passes to the purchaser at the
time of last installment paid.
¾ In case of default is made in payment of any one
installment, the seller is entitled to take away the
goods.
¾ The hirer/purchaser is free to return the goods
without being required to pay any further
installments falling due after the return.
Contents of H.P. Agreement
Must be in writing & signed by both the parties
Description of goods
Price of Hire Purchase
The date of commencement of agreement
The number of installment, amount & due date
H.P. Vs Credit Sale
Point
Hire Purchase
Credit Sale
Title of
Property
Ownership with
seller, possession
with hirer
Both Ownership &
possession with
buyer
Case of
Default
Seller can take
back goods
Seller can charge
interest for O/s
amount
H.P. Vs Installment Sale
Point
Hire Purchase
Installment Sale
Title of
Property
Ownership with
seller, possession
with hirer
Both Ownership &
possession with
buyer
Case of
Default
Seller can take
back goods
Seller can sue the
buyer
Hire Purchase & Leasing
POINTS
HIRE PURCHASE
LEASING
Ownership With Seller
With Lessor
Method of Business Assets &
Financing Consumer articles
Only Business
Assets
Claim of
Hirer can claim
Depreciation
Lessee cant
claim
Hire Purchase & Leasing
POINTS
HIRE PURCHASE
Tax Benefit Only interest part
is installment Tax
deductible
LEASING
The entire
lease is Tax
deductible
Salvage
Value
Hirer enjoys the
Salvage value
Lessee cant
enjoy the same
Deposit
Normally 20%
deposit required
No deposit
required
Hire Purchase & Leasing
POINTS
HIRE PURCHASE
LEASING
Extent of
finance
70 to 75% finance
is made
100% finance
is made
Maintenance Born by hirer
himself
Reporting
Shown in the
Balance Sheet of
Hirer
Lessee is
responsible
Shown as
Foot note only
Origin & Development
Origin can be traced to 1807 in U.S.A. when
Cowperwet & Sons, a furniture dealer introduced
the system. In U.K. it was after industrial
development by Henry Moore a piano maker in
1846. All early Hire Purchases were financed by
manufacturer or dealer. In India the growth is
visible after second World War though it was
started after 1st World War. It increase in it’s
activities during fifties & sixties.
Origin & Development
In 1987-88 the total of hire purchase business in
India is Rs.635 crores. Now it is estimated around
Rs.3000 crores. Now not only automobile but also
consumer goods are sold on hire purchase system,
with a growing Indian middle class 100 to 150
million & their willingness to mortgage the future for
today’s enjoyment have led spectacular growth in
this business.
Bank & H.P. Business
Through recent notification issued on 7-9-1990 of
Banking Regulation Act 1949, Government of
India permitted banks to engage in hire purchase
business with taking into account the guidelines
from R.B.I.
No banks at present can undertake directly the Hire
purchase business
The banks which are already engage in merchant banking
or equipment leasing can undertake this business but only
after prior approval from R.B.I.
The investment of bank in the shares of subsidiary set up
for hire purchase business shall not in the aggregate exceed
10% of paid up & reserve