Hire purchase is a method of buying goods through installment payments over time, similar to rent-to-own agreements. Under a hire purchase contract, the buyer leases the goods until full payment is made, at which point ownership transfers. While installment sales transfer ownership upon purchase, hire purchase and installment sales are otherwise similar forms of financing. The key differences between hire purchase and lease financing are that hire purchase transfers ownership to the buyer after final payment, while lease assets revert to the lessor; the hirer claims depreciation tax benefits under hire purchase but the lessor does under leasing.

1. HIRE PURCHASE

2. MEANING
• A method of buying goods through making installment
payments over time. The term hire purchase originated in
the U.K., and is similar to what are called "rent-to-own"
arrangements in the United States. Under a hire purchase
contract, the buyer is leasing the goods and does not obtain
ownership until the full amount of the contract is paid
• PARTIES- HIRER & HIREE

3. HIRE PURCHASE & INSTALLMENTS
• Acquisition of the asset on hire purchase basis, a
customer can buy and own it out rightly, on installment
basis.
• Installment sell is a credit sale and the ownership
passes to the buyer,
• Except for the timing of the transfer of the ownership,
Installment sale and Hire Purchase sale are similar.

4. HIRE PURCHASE VS LEASE FINANCE
• Both are in the form of Secured loan.
• Both displays the Debt Capacity of the firm.
• Hirer becomes the Owner as soon as he pays last
installment. But in case of Lease the Assets are revert
back to the Lessor.

5. BASIS ON WHICH H.P & L.F
DIFFERENTIATE
• OWNERSHIP
• DEPRECIATION
• MAGNITUDE
• MAINTAINENCE
• TAX BENEFIT

6. BASE HIRE PURCHASE LEAE FINANCE
The lessor is the owner .The lessee is
In contrast the ownership of assets entitled to the use of the leased
passes on to the user ,in case of hire- asset/equipment only in case of lease
purchase finance, on payment of last financing. The ownership is never
OENERSHIP installment transferred to the use
The hirer is entitled to the depreciation The depreciation on the asset is charged
shield on the assets hired by him. in the book of the lessor
DEPRECIATION
In hire purchase is relatively low.For eg. The magnitude of funds involved in the
automobiles, office equipments, former is very large, for example the
generators etc purchase of aircrafts, ships, machinery
MAGNITUDE
In case of finance lease only, the
maintenance of the leased asset is the
The cost of maintenance of hired asset is
responsibility of the lessee.
MAINTAINENCE to be borne, typically by the hirer himself
In case of leasing, the lessor is allowed to
The hirer is allowed the depreciation claim claim depreciation and the lessee is
and finance charge and the seller may allowed to claim the rentals and
claim any interest on borrowed funds to maintenance cost against taxable income
TAX BENEFIT acquire the asset for tax purposes