Hire Purchase

HIRE PURCHASE
Hire purchase is an agreement between two

parties.
• Here, possession of goods is transferred

immediately but payment is made in instalments
• Ownership is transferred after all the instalments

have been paid.
PARTIES INVOLVED IN
HIRE PURCHASE
Financial
Institution
Hire Hire
Vendor Purchaser
FEATURES OF HIRE
PURCHASE
• Hire purchase is an agreement between two
parties called Hire Vendor and Hire Purchaser.
• The hire purchaser becomes the owner of the
asset after paying the last instalment.
• The hire vendor has the right to repossess the
asset in case of difficulties in obtaining the
payments of instalment.
• Payment will be made in instalments.
• The instalments in hire purchase include
interest as well as repayments of principal.
• Usually, the hiree charges interest on flat rate.
PROCESS OF HIRE
PURCHASE
• The Dealer , contracts with finance co. for
financing his purchase deals.
• The customer selects the goods for HP, and dealer
arranges for the complete set of documents.
• Down payment by customer on the completion of
proposal form.
• Dealer sends documents ton finance co. With
request to purchase the goods, and accept the HP
transaction.
• The finance co. Signs the agreement and sends
copy along with EMI details to dealer.
• Dealer delivers the goods to the customer ,
property passes on to the finance co.
• Hirer pays EMIs, and on last payment , the
ownership passes on to him , with loan
completion certificate by the finance co.
ADVANTAGES OF HIRE
PURCHASE
• No immediate cash
• Easy possession
• Economic growth
• Thrift
• Relief to buyer
LIMITATIONS OF HIRE
PURCHASE
• Reputed buyer.
• May lead to bankrupty.
• Buyer has to mortgage his property.
• Buyer may incur loss.
• May lose paid instalments in the event of
default.
• It is expensive.
• Loss to seller in the event of default by the
buyer.
DIFFERENCE
BETWEEN HIRE
PURCHASE AND
INSTALMENT
HIRE INSTALMEN
PURCHASE T
1.MEANING System of System of credit
buying goods by sale in which a
making regular sum of money or
payment until debt is paid
the full price is regularly in
paid. instalment.
2.NATURE It posses the It posses the nature
nature of hiring. of selling.
3.OWNERSHIP Ownership of Ownership is
OF GOOD good remains transferred
with seller immediately
until the full after the first
price is paid. instalment.
4.RETURN Goods can be Goods cannot

returned to the be returned.
seller before
the final
instalment.
5.TRANSFER Buyer cannot Buyer can sell
transfer or sell or transfer the
the good until ownership of
the final the good at
instalment is any time.
made.
6.PARTIES Generally , Two parties
INVOLVED three parties involved: seller
involved : and buyer.
seller,
financing party
or buyer.
7. REPAIR AND Seller is Buyer is
MAINTENENC responsible. responsible.
E
8. INTEREST Flat rate. Interest is

RATE already
involved in the
instalment
amount.
DIFFERENCE
BETWEEN HIRE
PURCHASE AND
LEASING
HIRE LEASING
PURCHASE
1.TRANSFER In, hire purchase
OF the agreement is
OWNERSHIP entered for the
transfer of
ownership after
a period.
2. It is a temporary It is a bipartite
AGREEMENT agreement. agreement.
TYPE
3.DEPRICIATION Depreciatio Depreciation
CLAIM n is claimed is claimed by
by the the leaser in
purchaser . the lease
agreement.
4.BUYERS COUNT The goods In lease,
or property is though the
sold once person can be
and there one person
cannot be there can be a
more than number of
one buyer. leases.
5.PERIOD OF HP agreement The period of
AGREEMENT is longer as lease will be of
valuable goods shorter
or properties duration as
are purchased. technological
changes will
affect the lease
6. The relation The
RELATIONSHIP between seller relationship in a
AGREEMENT and buyer will lease agreement
be that of is that of leaser
owner and hirer and lessee.
in hire
7. SALES TAX Sales tax is Sales tax
paid by the depends on the
buyer on the actual value at
total value of the time of sale
goods in a hire in leasing.
purchase.
8. PAYMENT Any
DEFAULT
BILL DISCOUNTING
Bill discounting is a discount or fee which a
bank takes from seller to release funds before
the credit period ends.
This bill is then presented to seller’s customer
and fill amount is collected . Bill discounting
is mostly applicable in scenarios when a buyer
buys goods from the seller and the payment is
to be made through letter of credit.
It is an arrangement whereby the seller
recovers an amount of sales bill from the
financial intermediaries before it is due.
It is a business vertical for all types of
financial intermediaries such as banks,
financial institutions etc.
TYPES OF BILL
DISCOUNTING
Bill discounting is applied on bills of exchange
and hence, it would be a lot better if we
focused on the types of bills of exchange .
They can be broadly classified on the basis of:
• On the basis of period
• On the basis of object
• Inland bills
• Foreign bills
CHARECTERSTICS OF
BILL DISCOUNTING
• Discount charge
• Maturity
• Ready Finance
• Discounting and Purchasing.
BILLS OF EXCHANGE
• It can be best described as a written order to a
person requiring them to make a specified
payment to the signatory or to a named payee
a promissory note.
TYPES OF BILLS MARKET SCHEMES

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HIRE PURCHASE

Hire purchase is an agreement between two

• Here, possession of goods is transferred

• Ownership is transferred after all the instalments

4.RETURN Goods can be Goods cannot

8. INTEREST Flat rate. Interest is

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