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    Hire Purchase: Property Sale

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    Aman Jain
    Hire purchase is an arrangement where a buyer makes a down payment on an expensive good like a car and pays the remaining balance off in installments plus interest. Ownership does not transfer to the buyer until all payments are made. It allows consumers to spread costs over time but hire purchase agreements are generally more expensive than buying outright. There are advantages like spreading costs, interest-free options, and higher acceptance rates, but also disadvantages like encouraging debt, mortgaging future income, difficulty reselling goods, and not gaining ownership until final payment.

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    Hire Purchase: Property Sale

    Uploaded by

    Aman Jain
    46 views7 pages
    Hire purchase is an arrangement where a buyer makes a down payment on an expensive good like a car and pays the remaining balance off in installments plus interest. Ownership does not transfer to the buyer until all payments are made. It allows consumers to spread costs over time but hire purchase agreements are generally more expensive than buying outright. There are advantages like spreading costs, interest-free options, and higher acceptance rates, but also disadvantages like encouraging debt, mortgaging future income, difficulty reselling goods, and not gaining ownership until final payment.

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    Hire purchase

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    Hire purchase is an arrangement where a buyer makes a down payment on an expensive good like a car and pays the remaining balance off in installments plus interest. Ownership does not transfer to the buyer until all payments are made. It allows consumers to spread costs over time but hire purchase agreements are generally more expensive than buying outright. There are advantages like spreading costs, interest-free options, and higher acceptance rates, but also disadvantages like encouraging debt, mortgaging future income, difficulty reselling goods, and not gaining ownership until final payment.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    46 views7 pages

    Hire Purchase: Property Sale

    Uploaded by

    Aman Jain
    Hire purchase is an arrangement where a buyer makes a down payment on an expensive good like a car and pays the remaining balance off in installments plus interest. Ownership does not transfer to the buyer until all payments are made. It allows consumers to spread costs over time but hire purchase agreements are generally more expensive than buying outright. There are advantages like spreading costs, interest-free options, and higher acceptance rates, but also disadvantages like encouraging debt, mortgaging future income, difficulty reselling goods, and not gaining ownership until final payment.

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    Hire purchase

    What is a Hire Purchase?

    Hire purchase is an arrangement for buying expensive consumer goods,


    where the buyer makes an initial down payment and pays the balance
    plus interest in installments. With some installment plans, the buyer
    gets the ownership rights as soon as the contract is signed with the
    seller. With hire purchase agreements, the ownership of the
    merchandise is not officially transferred to the buyer until all the
    payments have been made. Hire purchase agreements usually prove to
    be more expensive in the long run than purchasing an item outright.
    The rent-to-own concept is very similar to hire purchase. The lessee will
    pay the rent for a property or a vehicle over a period of time. If the
    lessee pays the actual sale price of the property or vehicle, he will have
    the option to own the property or vehicle at any time
    Types of Hire Purchase

     Industrial Hire Purchase: In this the hirer is not the natural


    personal but the companies or the industries that take the goods
    on hire for their business purposes. Example: the hire purchase of
    of building for the use in office.

     Consumer Hire Purchase: In this type, the goods are hired by the
    buyer for non-business purposes i.e. for his personal use. This can
    also be for family or other household purposes apart from the
    business. The hirer here is not the business but the natural
    person.
    Advantages of Hire Purchase

    These are the following advantages of hire purchase:

    1. Spread the Cost of Finance

    Whilst choosing to pay in cash is preferable, this might not be possible


    for consumers on a tight budget. A hire purchase agreement allows a
    consumer to make monthly payments over a pre-specified period of
    time.

    2. Interest-Free Credit

    Some merchants offer customers the opportunity to pay for goods and
    services on interest-free credit.This is particularly common when
    making a new car purchase or on white goods during an economic
    downturn.

    3. Higher Acceptance Rates

    The rate of acceptance on hire purchase agreements is higher than


    other forms of unsecured borrowing because the lenders
    have collateral security.

    4. Sales

    A hire purchase agreement allows a consumer to purchase sale items


    when they are not in a position to pay in cash.

    5. Debt Solutions

    Consumers that buy on credit can pursue a debt solution, such as a


    debt management plan if they experience money problems further
    down the line.

    6. Higher Realized Income


    Higher rate of interest can be charged and as the calculation is on the
    original advance, higher-income would be realized.

    Disadvantages of Hire Purchase

    These are following disadvantages of hire purchase:

    1. Encourages Lavish Expenditures

    On account of the easy payment facility, consumers go in for articles,


    which may be beyond their means. Thus, this encourages lavish
    expenditures

    2. Future Income is Mortgaged

    As consumers have to pay installments over a period of time, their


    future income is mortgaged.

    4. Difficulty in Re-sale of Goods

    Even though the hire seller has the right to respond to the articles in
    case of default, selling them again is difficult as they second-hand good

    5. Personal Debt

    A hire purchase agreement is yet another form of personal debt.

    It is a monthly payment commitment that needs to be paid each


    month.

    6. Final Payment

    A consumer does not have a legitimate title to the goods until the final
    monthly payment has been made.
    7. Bad Credit

    All hire purchase agreements will involve a credit check.

    Consumers that have a bad credit rating will either be turned down or
    be asked to pay a high-interest rate

    The hirer's rights


    The hirer usually has the following rights:

    1. To buy the goods at any time by giving notice to the owner and
    paying the balance of the HP price less a rebate (each jurisdiction
    has a different formula for calculating the amount of this rebate)
    2. To return the goods to the owner—this is subject to the payment
    of a penalty to reflect the owner's loss of profit but subject
    to a maximum specified in each jurisdiction's law to strike a
    balance between the need for the buyer to minimize liability and
    the fact that the owner now has possession of an obsolescent
    asset of reduced value
    3. With the consent of the owner, to assign both the benefit and the
    burden of the contract to a third person. The owner cannot
    unreasonably refuse consent where the nominated third party
    has good credit rating

    The owner's rights[edit]


    Forfeit deposit and retain ,in this the installments already paid and
    recover the balance due

    1. 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)

    2. to claim damages for any loss suffered

    Example of Hire Purchase

    Suppose, Mr. Jain approached a vendor that deals with Car’s as he


    wanted to purchase a Car for his business worth $1,00,000. Mr. Jain
    doesn’t have $1,00,000 in hand initially so he entered into an
    agreement with the vendor that initially he will pay $10,000 for the car
    and remaining $90,000 will be paid by him in 9 equal monthly
    installments of $10,000 along with the interest @10%p.a. that will be
    charged monthly on the outstanding balance. The terms & conditions
    also include that the ownership of the asset will be transferred after the
    payment of last installment and if the customer fails to pay installments
    then the asset will be taken back. This whole arrangement is the hire
    purchase

    Conclusion
    Therefore,Hire Purchase (HP) agreement is made when the buyer of the

    expensive asset is unable to pay the full selling price of the asset at a
    single point of time, therefore, with the consent of vendor buyer agrees

    to pay some initial down payment at the time of delivery of asset and

    the remaining amount is paid in installments along with the interest.

    The vendor earns the interest income also besides the profit margins on

    such transactions and the buyer gets the benefit to use the asset

    without paying full amount at once.

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