Hire purchase is an agreement where a buyer makes a down payment on expensive goods and pays the remaining balance plus interest in installments. Ownership transfers to the buyer only after all payments are made. Key features include the seller retaining ownership until final payment and the buyer's ability to return goods before completing installments. An installment payment system differs in that ownership and possession transfer immediately upon signing, with the buyer making payments over time. Rights of hire vendors include receiving full payment and repossessing goods if payments are defaulted. Rights of hire purchasers include possessing goods, early purchase, and terminating the agreement before final payment.

1. By MS Ashwitha Shetty
Assistant Professor
Department of Commerce(UG)
Kristu Jayanti College
Autonomous – Bengaluru

2. Meaning
◦ Hire purchase is an arrangement for buying
expensive goods, where the buyer makes
an initial down payment and pays the
balance plus interest in installments.
◦ A hire purchase (HP),[1] also known as
an installment plan, is an arrangement
whereby a customer agrees to a contract to
acquire an asset by paying an initial
installment (e.g., 40% of the total) and
repaying the balance of the price of the
asset plus interest over a period of time.

3. Hire Purchase System
◦ These types of agreements are generally
used for very expensive goods.
◦ In a hire purchase agreement, ownership is
not transferred to the purchaser until all
payments are made.
◦ The seller of goods deliver the goods to
the buyer without transferring the
ownership of goods
◦ If buyer pays all the installment the
ownership of the goods will be transferred

4. Feature of HP
◦ HP 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 installment.
◦ Every installment is treated as hire charge for
using the asset.
◦ 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.
◦ The hirer cannot pledge, sell or mortgage
the assets as he is not the owner of the
assets till the last payment is made.

5. Parties of Hire Purchase

6. Installment payment system
◦ An instalment payment system is a credit
sale system in which payments are made in
instalments over a period of time.
◦ In this system, the buyer gets the
possession of the goods as well as the
ownership of the goods right at the time of
signing the agreement.
◦ Under this system, the buyer becomes the
owner of the goods immediately on signing
the contract of sale.

7. Feature of Installment payment system
◦ The installment purchase system is just like an absolute credit
sale of goods.
◦ The buyer makes the payment in different installments over a
period of time as agrees upon in the agreement
◦ Under the installment purchase system, the buyer gets the
immediate possession as well as the ownership of goods.
◦ Since ownership has passed the buyer cannot return the goods
to the seller if he or she does not like the product.
◦ The seller can not responses the good if the buyer made default
in the payment of installment but he/she can sue against the
buyer for the recovery of the amount due.
◦ In case of default in the payment of installment, the total
amount of installments already paid by the buyer can not be
surrendered.
◦ The buyer can sell or mortgage the goods even before clearing
all the installments.

11. Importance terms and provision under Hire purchase
◦ Hire Purchaser : He is a person who obtain the possession of goods
◦ Hire Vendor : He is the person who owns the goods
◦ Cash Price : It is the price at which goods are sold under “contract of
sale”
◦ Hire Purchase Price : This is the total amount you will pay over the life
of the loan. The hire purchase price is the monthly payment or
instalment multiplied by the number of instalments which you have to
make.
◦ Installment Money :It refers to a part of hire purchase price paid by hire
purchaser periodically
◦ Deposit : It means any money payable by the hirer by way of deposit.
◦ Hire Purchase Charges :it is the difference between net hire purchase
and net cash price of the goods

12. Rights of Hire Vendor
◦ Right to get the full payment for the goods sold under hire
purchase system.
◦ Right to terminate the hire purchase agreement for default in
payment of hire or unauthorized act or breach of express conditions
contained in the hire purchase agreement by the hirer.
◦ Right to forfeit (penalty) the initial deposit on termination of the
hire purchase agreement.
◦ Right to recover possession of the goods on termination of the hire
purchase agreement.
◦ Right to claim damage for non-delivery of the goods from the date
on which termination of the hire purchase agreement is effective to
the date on which goods are delivered to or seized by the owner.

13. Rights of a hire purchaser
◦ Right to get possession of the goods on the date
of signing the hire purchase agreement.
◦ Right to purchase the goods at any time with
rebate.
◦ Right to terminate the hire purchase agreement
at any time before the final payment.
◦ Right to appropriate payments in respect of two
or more agreements.

14. Rebate
◦ A rebate is a payment back to a buyer of a portion of the
full purchase price of a good or service
◦ A rebate is a partial refund of the cost of an item.
◦ For example, a rebate agreement states if a customer
purchases 1,000 units of product, then they can claim a
5% rebate. Each unit is $100, so if the buyer purchases
1,000 units, the buyer can claim a rebate reward of
$5,000. This would be a volume incentive rebate.

15. Formula For Calculating the Rebate
◦Rebate = 2/3 X Hire Charges X No of
Instalments Due / Total Number of Installment