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A transaction of finance whereby goods are bought & sold as per the terms & conditions

A transaction of finance whereby goods are bought & sold as per the terms & conditions specified below is known as ‘Hire Purchase Finance’

1.Payment of periodic installments 2.Immediate possession of goods by the buyer

3.Ownership of goods remaining with the vendor until the payment of the last installment

4.Treatment of each installment as hire charge till the payment of the installment

According to Hire Purchase Act –
According
to
Hire
Purchase
Act

1972, the term ‘hire purchase’ is defined

as

“An agreement under which goods are let on hire & under which the hirer has an option to purchase them in accordance with the terms of the agreement.”



Under hire purchase system, the buyer takes possession of goods immediately and agrees to pay the total hire purchase price in instalment.

Each instalment is treated as hire charges.

The ownership of the goods passes from buyer to seller on the payment of the instalment.

In case the buyer makes any default in the payment of any instalment the seller has right to repossess the goods from the buyer and forfeit the amount already received treating it as hire charge.

The hirer has the right to terminate the agreement any time before the property passes. That is, he has the option to return the goods in which case he need not pay instalments falling due thereafter. However, he cannot recover the sums already paid as such sums legally represent hire charge on the goods in question.

 A system of consumer
 A
system
of
consumer

financing,

whereby

 

the

payment of the purchase price

is deferred,

to

be

pain

in

reasonable

instalments

is

known as “Instalment Buying

System”

 An ordinary sale of goods with payment system The buyer obtains ownership & possession on

An ordinary sale of goods with payment system The buyer obtains ownership & possession on payment of the first instalment.

No possibility of the article sold being returned to the seller, since sale is complete immediately after the execution of the agreement

Seller has no right to recover possession of the goods if the buyer commits a defaults if the payment of outstanding instalments & there is no question of forfeiture of paid instalments against default. How ever he is entitled to recover his dues with the help of court.

Feature Hire Purchase Installment Buying Actual Sale It happens only at the payment of the last

Feature

Hire Purchase

Installment Buying

Actual Sale

It happens only at the payment of the last installment

It happens when the first installment payment is done

Legal

Until the last installment is made the ownership is with

The buyer is the rightful ownership on the first

Ownership

the Hire Purchase company

installment payment

Right to sell

A hire-purchaser cannot sell the article until the last hire charge is paid

The buyer can sell the article at any time

Legal

The seller gets max

The buyer gets maximum protection of

Protection

protection by the law

the law

Default

The buyer can lose both the article & the entire amount paid if there is a default

No risk of loss to buyer even on default

Seller’s

The seller can get back ownership & possession if

The seller cannot repossess but has

Feature Leasing Finance Hire Purchase Down No down payment is required Down payment is required –
Feature
Leasing Finance
Hire Purchase
Down
No down payment is required
Down payment is required
– to the extent of 20% to
Payment
25%
Ownership
Ownership of the property lies
with the finance company
Ownership of the property
is transferred to the hirer
of the payment of the last
installment
Depreciation
Lessor, & not the lessee, is
entitled to claim depreciation
tax shield
The hirer(owner) is
entitled to claim
depreciation tax shield
Capitalization
Capitalization of the asset is
done in the books of lessor,
the leasing co
Capitalization of the asset
is done in the books of the
hirer
Payments
The entire lease payments
are eligible for tax
computation in the books of
the lessee
Only the hire-interest is
eligible for tax
computation in the books
of the hirer
Feature Leasing Finance Hire Purchase Magnitude Leasing is used as a source of finance usually for
Feature
Leasing Finance
Hire Purchase
Magnitude
Leasing is used as a source of
finance usually for acquiring
high cost assets such as
machinery, ships, airplanes.
HP is used as a source of
finance. Usually low cost
assets such as
automobiles, office
equipments
Nature of
asset
An asset given on lease by a
leasing company is considered
as the fixed asset of the lessor
The hire vendor normally
shows the asset let under
HP either as stock in
trade or as receivables
Receipts
All receipts from the lessee is
taken into the lessor’s profit &
loss A/C
Only the interest portion
is taken into the hire-
vendor’s P&L A/C

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