Hire Purchase
HIRE PURCHASE SYSTEM
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.
Difference Between and Hire Purchase
Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between sale and hire purchase.
|Sale |Hire Purchase |
|A ‘sale’ is governed by the sale of Goods Act, 1930. |Hire purchase is governed by the Hire Purchase Act, 1972. |
|In case of sale, the ownership of the goods is transferred to |In case of Hire purchase, the ownership of goods is transferred to |
|the buyer immediately. |buyer on payment of all installments. |
|In case of sale, the buyer makes payment in lumpsum. (if the |In case of
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.
Difference Between and Hire Purchase
Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between sale and hire purchase.
|Sale |Hire Purchase |
|A ‘sale’ is governed by the sale of Goods Act, 1930. |Hire purchase is governed by the Hire Purchase Act, 1972. |
|In case of sale, the ownership of the goods is transferred to |In case of Hire purchase, the ownership of goods is transferred to |
|the buyer immediately. |buyer on payment of all installments. |
|In case of sale, the buyer makes payment in lumpsum. (if the |In case of