The purchaser or the buyer is also known as hirer who purchases the goods on hire purchase from the seller agreeing to pay the value of the goods in regular instalments spreadover a specific period of time.
In most of the hire purchase contracts there are only two parties; the seller and the buyer but in certain rare the cases there may be a third party, the hire purchase financer who pays the price of the goods to the seller on behalf of the buyer and then collects the duesalong with interest from the buyer of the goods.A dealer now normally arranges a hire purchase agreement through a finance company withthe customer. It is therefore, a tripartite deal.
The finance (hire purchase) company purchases the equipment from the supplier andgives it on hire.
The hirer is required to make a down payment of 20-25% of the cost and pay the balance amount along with the interest in EMI, in advance or arrears over a time spanof 36-48 months.
Alternately, instead of the down payment, the hirer has to deposit an equal amount asa fixed deposit with the finance company which provides the entire finance on hire purchase terms, repayable with interest in EMIs over 36-48 months.
Deposit and the accumulated interest is returned to the hirer upon payment of the lastinstalment.
The interest on each hire purchase instalment is computed on the basis of flat rate of interest and the effective rate of interest is applied to the declining balance of theoriginal loan amount to determine the interest component of instalment. For a givenflat rate of interest, the equivalent effective rate of interest is higher.
The hirer's rights
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 theamount of this rebate)
To return the goods to the owner — this is subject to the payment of a penalty toreflect 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 minimizeliability and the fact that the owner now has possession of an obsolescent asset of reduced value.
With the consent of the owner, to assign both the benefit and the burden of thecontract to a third person. The owner cannot unreasonably refuse consent where thenominated third party has good credit rating
Where the owner wrongfully repossesses the goods, either to recover the goods plusdamages for loss of quiet possession or to damages representing the value of the