Hire purchase is a method of financing large purchases by making installment payments over time. The ownership of the purchased item is not transferred to the buyer until all payments are made. Companies offer hire purchase to earn a profit from interest charged on the monthly payments. Key features include installment payments, retention of ownership by the seller until final payment, and an option for the buyer to either purchase the item or return it. Hire purchase allows buyers immediate use of expensive assets by spreading costs over time, but the total amount paid is higher than the upfront cost and the buyer cannot resell the item until owning it outright.

1. Welcome

2. HIRE PURCHASE FINANCE
JUMANUL HAQUE OV
DEPT OF COMMERCE
PONDICHERRY UNIVERSITY
KARAIKAL CAMPUS

3. MEANING
A hire purchase is a method of buying goods
through making installment payments over time
The ownership of the good purchased through a hire
purchase is not officially transferred to the buyer
until all required payments have been submitted.
Companies offering hire purchase options earn a
profit by applying additional costs to the monthly
payment which serves as interest charges for the
purchase.

4. DEFINITION
 Hire purchase can be defined as an option of financing or
acquiring an asset for use whereby the financing company let
the goods on hire to the buyer against small installments
called hire charges and the buyer gets the right to use the
asset with an option to purchase the asset by paying all such
installments spread over a period of time.
 Hire purchase was very prominent for vehicle financing
whether that is a personal car, commercial vehicle etc but now
equipment, machinery etc. are also financed with hire
purchase method.

5. FEATURES AND CHARACTERISTICS OF HIRE
PURCHASE
 Rental payments are paid in installments over the period of
the agreement.
 Each rental payment is considered as a charge for hiring the
asset. This means that, if the hirer defaults on any payment,
the seller has all the rights to take back the assets.
 All the required terms and conditions between both the
parties involved are documented in a contract called Hire-
Purchase agreement.
 The frequency of the installments may be annual, half-yearly,
quarterly, monthly, etc. according to the terms of the
agreement.

6. CONTINUES…….
 Assets are instantly delivered to the hirer as soon as the agreement is signed.
 If the hirer uses the option to purchase, the assets are passed to him after the last
installment is paid.
 If the hirer does not want to own the asset, he can return the assets any time and is
not required to pay any installment that falls due after the return.
 However, once the hirer returns the assets, he cannot claim back any payments
already paid as they are the charges towards the hire and use of the assets.
 The hirer cannot pledge, sell or mortgage the assets as he is not the owner of the
assets till the last payment is made.
 The hirer, usually, pays a certain amount as an initial deposit while signing the
agreement.
 Generally, the hirer can terminate the hire purchase agreement any time before the
ownership rights pass to him.

7. DIFFERENCES BETWEEN LEASE AND
HIRE PURCHASE
Points of Distinction Leasing Purchase Hire purchase
Ownership
Lessor is the owner till the end of the
agreement
Hirer has the option of purchasing the
asset at the end of the agreement
Duration Done for longer duration Done for shorter duration
Depreciation Lessor claims the depreciation Hirer claims the depreciation
Payments
Rental payments are the cost of using
the asset
Payments include the principal amount
and the effective interest for the
duration of the agreement
Tax Impact
Lease rentals categorized as
expenditure by the lessee
Only interest component is categorized
as expenditure by the hirer
Extent of Financing Complete financing Partial financing
Repairs and Maintenance
Responsibility of the lessee in financial
lease, and of the lessor in operating
lease
Responsibility of the hirer

8. Steps in hire purchase

9. ADVANTAGES OF HIRE PURCHASE
 Immediate use of assets without paying the entire amount.
 Expensive assets can be utilized as the payment is spread over a
period of time.
 Fixed rental payments make budgeting easier as all the
expenditures are known in advance.
 Easy accessibility as it is a secured financing.
 No need to worry about the asset depreciating quickly in value
as there is no obligation to buy the asset

10. DISADVANTAGES OF HIRE PURCHASE
 total amount paid towards the asset will be higher than the
cost of the asset.
 The long duration of the rental payments.
 Ownership only at the end of the agreement. The hirer cannot
modify the asset till then.
 The addition of any covenants increases the cost.
 If the hired asset is no longer needed because of any change
in the business strategy, there may be a resulting penalty.

11. Small scale companies and entrepreneurs can benefit
from Hire Purchase. Expensive and important assets
can be hired and later owned. This ensures that they
can start using the asset from very first day and use
the money earned to later buy the same assets.
HIRE PURCHASE IS BEST SUITABLE
FOR.

12. Conclusion
 Hire Purchase is an important source of financing in recent
times. It provides a convenient way to afford and acquire
assets that otherwise be financially unattainable. However,
before entering an agreement, one should clearly understand
the costs involved and the disclosures provided.

13. Thank you