Hire purchase system

Meaning/concept
Hire Purchase a form of purchase under which the purchase price can
be paid once an agreed period of time by instalments. During the
period the goods purchased remains the property of the owner.
Possession is granted to the purchaser by mean of a bailment by the
seller; property passes when the last installment has been paid and the
hirer exercises the option inherent in the agreement .
 Features/Characteristics

Each rental payment is considered as All the required terms and

Rental payments are
paid in installments
over the period of the
agreement
the charge for hiring the asset. This conditions between both the
means that, if the hirer defaults on parties involved are
any payment, the seller has all the documented in a contract called
rights to take back the assets hire-purchase agreement

Hire-purchaser has the right to
terminate the agreement at any
time in the capacity od a hirer
The hirer cannot pledge, sell or
mortgage the assets as he is not
the owner of the assets till the
last payment is made
The frequency on the
installments may be annual,
half-yearly, monthly, etc.
according to the terms of the
agreement.
 Advantages
Facility of Buying
Higher sales
Helpful to small producers
Items can be repossessed if payment is
not made out cost over times
It spreads
No taxes charged
Can be paid off early
Asset can be used without giving the full
payment
 disAdvantages
Higher price
Artificial demand
Heavy risk
Difficulties in recovery of installments
Break up of families
Committing to ongoing fixed
payments
Asset depreciation
 Fewer discounts usually available
 Hire Purchase Agreement
Hire purchase agreements are agreements whereby an
owner of goods allows a person, the hirer, to hire goods
from him for a period of time by paying installments.
The hirer has an option to buy the goods at the end of
the agreement if all installments are being paid. This is
not a contract of sale but contract of bailment as the
hirer merely has an option to buy the goods. Although
the hirer has the right of using the goods, he is not the
legal owner during the term of the agreement.
 Flow chart of Hire Purchase System

Seller sells HP co. Buyer Hirer Ownership

goods to lets the makes makes all transfers
Financial or goods on down the agreed from HP Co.
Hire hire to payment instalment to
Purchase(HP) buyer/hire and takes s. buyer/hirer.
co. r. possession.
 Methods of hire purchase
Asset accrual system
Credit Interest suspense method
method
Under this method, ownership of the assets purchase with This method is applicable in cash of
depends on the payment made towards
Under thisinterest or will be
method asset account instalment payment system. Under this
principle (i.e. instalment less interest) and
debited with the full amount of cash method assets account is debited with the
assets account will be debited by the sales method
price of the assets. Since the object of the full amount of cash price and interest
amount of ‘principle’. Since the ownership
hire purchases is to be the owner of the suspense account is opened which is
of the assets is not transferred from the
assets and as a result the same should be debited at the time of taking delivery by
seller to the buyer till the last installment is
treated like credit purchase of an assets the total amount of interest paid for all
paid.
in the books of hire purchased. the years and the same is credited by
Therefore, ownership of the assets will
debiting the rest account in each
accurse with the instalment paid towards
subsequent years.
principle.
 conclusion
o According to the above research we can conclude that the concept of
hire purchase agreement is the best way to hire any article which is
generally expensive to afford and at the end, you can even purchase it if
you are able to.
o But as a matter of fact it cost you more because the instalment money is
generally added with interest and outstanding of the particular article.
o It is an agreement that is precipitated on the general rule of contract of
law of offer and acceptance on the part of the hirer on that of the owner.
o It pertinent to note that the obligation of the buyer and that of the owner
are concurrent obligations and that must be done in line with each
other’s obligation.
Thanks!
Saloni Somaiya(21)Dollu Mehta(27)
Aayushi Savla(22)Malhar Songire(28)
Paul Nishant (23) Trupti Nalavade(29)
Yash Thaker(24) Harikrishna
Jil Vora(26) Thokala(30)
Ajay Chaudhary(31)