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Presentation On Hire Purchase and Leasing
Presentation On Hire Purchase and Leasing
BY
MANOJ.K
JAYAPRAKASH
Hire purchase
the HP price, i.e., the total sum that must be paid to hire and then purchase
the goods
the deposit
The right of the hirer to terminate the contract when he feels like doing so
with a valid reason
The hirer's rights
The owner's rights
The owner usually has the right to terminate
the agreement where the hirer defaults in
paying the installments or breaches any of the
other terms in the agreement. This entitles the
owner
to forfeit the deposit
to retain the installments already paid and
recover the balance due
to repossess the goods (which may have to be
by application to a Court depending on the
nature of the goods and the percentage of
the total price paid)
to claim damages for any loss suffered.
Advantages of Hire Disadvantage of hire
Purchasing purchasing
Cash flow: payment by Inflexible: difficult to
instalments. escape the
Writing down outstanding
allowances apply. settlement if say, a
vehicle is no longer
Hire purchase is an required.
alternative funding High deposit compared
line to bank overdrafts
to contract hire.
Attracts fixed rate
Business hire purchase
interest.
appears as a debt on
Others same as Outright the balance sheet
Purchase. which could inhibit
future borrowing.
More expensive than
contract hire
Burden of controlling
and running fleet
LEASING
INTRODUCTION
Leasing, as a financing concept, is an
arrangement between two parties, the
leasing company or lessor and the user or
lessee, whereby the former arranges to buy
capital equipment for the use of the latter for
an agreed period of time in return for the
payment of rent.
The rentals are predetermined & payable at a
fixed interval of time, according to
conveniences of the parties.
DEFINATION
Finance Leasing
Operating Leasing
Finance Leasing
The finance lease or 'full payout lease' is closest to
the hire purchase alternative. The leasing
company recovers the full cost of the equipment,
plus charges, over the period of the lease.
Although the business customer does not own the
equipment, they have most of the 'risks and
rewards' associated with ownership. They are
responsible for maintaining and insuring the
asset and must show the leased asset on their
balance sheet as a capital item.
When the lease period ends, the leasing company
will usually agree to a secondary lease period at
significantly reduced payments. Alternatively, if
the business wishes to stop using the equipment,
it may be sold second-hand to an unrelated third
party. The business arranges the sale on behalf of
the leasing company and obtains the bulk of the
sale proceeds
Operating Leasing
If a business needs a piece of equipment for a
shorter time, then operating leasing may be the
answer. The leasing company will lease the
equipment, expecting to sell it secondhand at the
end of the lease, or to lease it again to someone
else. It will, therefore, not need to recover the full
cost of the equipment through the lease rentals.
This type of leasing is common for equipment
where there is a well-established
secondhand market (e.g. cars and construction
equipment). The lease period will usually be for
two to three years, although it may be much
longer, but is always less than the working life of
the machine.
Assets financed under operating leases are not
shown as assets on the balance sheet. Instead,
Difference between HP &
LEASING
1)ownership in a contract of lease ,the owner
ship rests with the lesser throughout & the
lessee ( hirer ) has no option to purchase
the goods .
2)Method of financing leasing is a method of
financing business assets whereas hire
purchase is a method of financing both
business assets & consumer articles .
3)Depreciation in leasing, depreciation &
investment allowance can not be claimed by
the lessess, in hire purchase, deprecation &
investment allowance can be claimed by the
hirer.
4)Tax benefit the entire lease rental is tax
deductible expenses .only the interest
component of hire purchase instalments is
Salvage value the lessee, not being the owner
of the asset , does not enjoy the salvage
value of the asset. The hirer, in purchase,
being the owner of the asset, enjoys salvage
value of the asset
Deposit lessee is not required to make any
deposit whereas 10% deposit is required in
hire purchase
Maintenance the cost of maintenance of the
hired asset is to be borne by the hirer himself.
in case of finance lease only, the
maintenance of leased assets is the
responsibility of the lessee.
M U T U A L B E N E F IT F IN A N C IA L
C O M P A N IE S
Mutual benefit financial companies or nidhis, as they are
Fixed deposit
Recurring deposits
THANK U