Hire purchase is a contract in which the goods are let on hire with an option of purchase.

Hirer

Hiree

User/ Purchaser of the asset

Owner of the asset

BASIS
Meaning

HIRE PURCHASE
Hire purchase is a type of installment credit under which the hire purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as interest, with an option to purchase. The hirer has an option of purchasing the goods at any point of time The hirer can terminate the contract at any point of time before paying the last installment The ownership of the goods is transferred only when he exercises the option to purchase

INSTALLMENT SALE
Installment sale is a contract where ownership is transferred to the buyer but the price is paid in specified installments over a definite period

Option to buy

The buyer is compelled to buy the goods The buyer is committed to pay the complete amount

Option of termination

Ownership transfer

The ownership transfer to the buyer simultaneously with the payment of installments

BASIS
Meaning

LEASE FINANCING
A lease transaction is a commercial arrangement, whereby an equipment owner or manufacturer gives to the equipment user the right to use the equipment in return for a rental.

HIRE PURCHASE
Hire purchase is a type of installment credit under which the hire purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as interest, with an option to purchase.

Option to user No option is provided to the lessee Option is provided to the hirer (user) to purchase the goods. (user).
Nature of expenditure Components Lease rentals paid by the lessee Only interest element included in are entirely revenue expenditure the HP installments is revenue of the lessee. expenditure by nature. Lease rentals comprise elements: 1. Finance charge 2. Capital recovery. of 2 HP installments comprise of 3 elements 1. Normal trading profit 2. Finance charge 3. Recovery of cost of goods/assets.