Introduction

By now you must have been familiar to various aspects of Book-keeping and
Accountancy. You must have understood the concept of double entry system. Now-a-
days the books of accounts are maintained under double entry system by all big
business houses and multinationals. You know that the sales is the Key factor of
success of business. The profit of a business always depends on the volume of its
sales. A big business house can effect sales on cash basis as well as on credit basis.
The credit sales are very important and essential for the growth of business. The
sale proceeds under such sales are not immediately collected but are collected
under certain arrangements such as Hire-purchase system or Instalment payment
system or collection after a certain period together with interest on outstanding
balances. Hire-purchase system is the most secured and effective tool of collecting
the proceeds of a credit sale.

Meaning and Concept of Hire-purchase system

Hire-puchase system is a special system of purchase and sale of goods. Under this
system purchaser pays the price of the goods in instalments. The instalments may
be annual, six monthly, quarterly, monthly fortnightly etc. Under this system the
goods are delivered to the purchaser at the time of agreement before the payment of
instalments but the title on the goods is transferred after the payment of all
instalments as per the hire-purchase agreement. The special feature of a hire-
purchase transaction is that the payment of every instalment is treated as the
payment of hire charges by the purchaser to the hire vendor till the payment of the
last instalment.. After the payment of the last instalment, the amount of various
instalments paid is appropriated towards the payment of the price of the goods sold
and the ownership or the goods is transferred to the purchaser. Thus hire-purchase
means a transaction where the goods are sold by vendor to the purchaser under the
following conditions :

 the goods will be delivered to the purchaser at the time of agreement.

 the purchaser has a right to use the goods delivered.
 the price of the goods will be paid in instalments.
 every instalment will be treated to be the hire charges of the goods which is
being used by the purchaser.
 if all instalments are paid as per the terms of agreement , the title of the
goods is transferred by vendor to the purchaser.

if there is a default in the payment of any of the instalments, the vendor will take
away the goods from the possession of the purchaser without refunding him any
amount received earlier in the form of various instalments.

Characteristics of Hire-Purchase System

The characteristics of hire-purchase system are as under

 Hire-purchase is a credit purchase.

 The price under hire-purchase system is paid in instalments.
 The goods are delivered in the possession of the purchaser at the time of
commencement of the agreement.
 Hire vendor continues to be the owner of the goods till the payment of last
instalment.
 The hire-purchaser has a right to use the goods as a bailer.
 The hire-purchaser has a right to terminate the agreement at any time in the
capacity of a hirer.
 The hire-purchaser becomes the owner of the goods after the payment of all
instalments as per the agreement.
 If there is a default in the payment of any instalment, the hire vendor will take
away the goods from the possession of the purchaser without refunding him any
amount.

What is hp sys

Hire purchase(frequently abbreviated to HP) is the legal term for a contract, in

cases where a buyer cannot afford to pay the asked price for an item of property
as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase
contract allows the buyer to hire the goods for a monthly rent. When a sum equal
to the original full price plus interest has been paid in equal installments, the
buyer may then exercise an option to buy the goods at a predetermined price
(usually a nominal sum) or return the goods to the owner. That Hire purchase is
in Lease, with which by the landlord the right was granted to the tenant to acquire within a
certain period by one-sided explanation the rented thing at a before determined price under
charge of the rents paid up to then available. Before the explanation finds on the contract Rental
 law Application. After the explanation it concerns one Sales contract, on that Purchase
right Application finds. However for each individual case the conditions of the individual offerers
are to be examined here. They differ partly substantially. Frequently no optional right is agreed
upon, but from the outset the passage of title with payment of the conclusion rate agreed upon
without it a practice explanation requires.

Usually the rent is superelevated. The reason lies on the one hand to cause the tenant to the
purchase. In addition, on the other hand with the use of the thing, if it concerns a new thing, a
strong depreciation is connected. For the buyer the incentive lies for the conclusion of a hire
purchase in the easier eligible for financingness opposite the Sofortkauf.

Hire purchase is not from fiscal view necessarily equivalently also Leasing. With a hire purchase
the economical goes Propertyimmediately on the buyer over. This makes an activation in Fixed
assets necessarily. The legal property goes i. D. R. after the payment of the last rate to the buyer
over.

Thus the hire purchase is rather with one Payment by instalments comparably, as with a

classical leasing contract.

In case of the insolvency of the salesman the treatment depends on whether a retention of title
was agreed upon. For § 107 InsO the reservation buyer can require the fulfilment of the contract
also in the case of the insolvency. But it is however necessary that the passage of title is
already certain with delivery of the hire purchase article.

difference

1. hire purchase(HP) is an agreement of hire, whereas credit sales is an agreement

of sale.
2. ownership of goods is transferred from hire vendor to hire purchaser only when the
last installment is paid, but in sales, ownership is transferred immediately to the
buyer.
3. price is paid by the hire purchaser through installment which is treated as hire,
but in sales price is paid in lumpsum or according to the agreement of sale.
4. the hire vendor can repossess the goods on default. but in sales the seller cannot
take back the goods, whatever is the case.

What are a Commercial Hire Purchase's features & benefits?

A Commercial Hire Purchase for financing a car or other passenger vehicle has a
number of main benefits:Choice of terms (loan lengths) ranging from 24 to 60
months (two to five years)

 Wide variety of residual value (balloon value) options, generally ranging

from 0% to 60% depending on the type and age of the vehicle
 A deposit may optionally be used to reduce the size of the loan
 Tax deductions may be available when the car is used for business
purposes
 Input Tax Credits may be available where the purchaser is registered for
GST
 A Commercial Hire Purchase is secured finance, which allows lower
interest rates

A Commercial Hire Purchase through Stratton Finance has the following extra

benefits (subject to lender selection):

 No ongoing fees
 Repayments can be structured, matching payment to your or
your business' cash flow 
 Fixed interest rate, so monthly repayments are fixed for the life
of the loan

Conclusion

Hire purchase is used for some years gladly for fraudulent snow ball systems in the KFZ trade.
Vehicles with unusual deductions are granted to buyers of over 30 %, if they carry for it a high
pre-payment out. The salesman can finance or even lease the vehicles delivered first with the
eingehenen pre-payments easily, although he has a higher purchase price. By the hire purchase
the salesman has a good pretext, the KFZ letter first to submit or to give change not have, so
that the buyer wähnt itself for some time in security. The system functioned so long sufficiently
growth available is, collapsed however typically after few years, since the salesman either the
liquidity goes out or flees with the pre-payments. The European Union-Car-center ECZ GmbH
from Tettnang in this way damaged between 2006 to 2008 over 1.000 customers. The
determinations still persist, the business model are however continued.