HIRE PURCHASE

MINTU TOM JOSE

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 Hire Purchase

• Hire purchase is used to buy expensive

items which a person cannot afford to pay
outright: e.g. a car

• A down payment is usually paid and the

balance is paid over several months
(monthly installments)

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• Goods are let out on finance by a finance
company to the hire purchaser
customer
• Buyer is required to pay an equal
amount of periodic installments during
a given period
• Ownership transfers at the payment of
the last installment
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 Hire Purchase Agreement
• An agreement under which goods are let
on hire and under which the hirer has an
option to purchase them in accordance
with the terms of the agreement.

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 What Is Hire Purchase

• Here possession of goods is transferred

immediately, but payment is made in
installments. Ownership is transferred
after all the installments have been paid.

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 TERMS OF HIRE PURCHASE
• In hire purchase the purchase has to follow the
agreement and he cannot terminate the
contract. The seller can however, terminate the
agreement in case of default of purchaser

• hire purchase price is higher than cash price,

because interest element is added in this price

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 A
• A purchases a machine for down payment of
Rs. 20000 and 3 annual instalments of 20000
each. Cash price is 74500. show the
accounting ? Rate of interest 5%

• 74500 – 20000 = 54500

interest = 2725
amount due : 57225
2nd instalement 20000
amount due : 37225
interest = 1861 due = 39086
3rd instalment : 20000, balance : 19086
interst (belancing amt) : 914
last instalment 20000 balance = nil

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 PROCESS OF HIRE
PURCHASE
• The Dealer, contracts with finance co. for financing his
hire purchase deals.
• The customer selects the goods for HP, and dealer
arranges for the complete set of documents.
• Down payment by customer on completion of proposal
form.
• Dealer sends documents to finance co. with request to
purchase the goods, and accept the HP transaction.
• The finance co. signs the agreement and sends copy
along with EMI details to dealer.
• Dealer delivers the goods to the customer, property
passes on to the finance co..
• Hirer pays EMIs, and on last payment , the ownership
passes on to him, with loan completion certificate by
the finance co.

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Some Business Asset Suitable For
Hire Purchase

• - Plant and machinery

- Business cars
- Commercial vehicles
- Agricultural equipment..
- Hotel equipment
- Medical and dental equipment
- Computers, including software packages
-Office equipment
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 Guide Lines For Banks As Far As Hire
Purchase Is Concerned
• For the present, banks shall not themselves undertake
directly (i.e, departmentally) the business of hire
purchase

• Banks which have set up subsidiaries (i.e, a company

in which it holds not less than 51% of the shares ) for
the business of equipment , leasing ,merchant
banking etc, may undertake the hire purchase
business either through such a subsidiary or through
a separate subsidiary.
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 Conclusion

Hire purchase is a good

tool for buying expensive items. So it is
advisable for most of the customers.

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