HIRE PURCHASE

In a hire purchase transaction the goods are let out on hire by a hiree to the hire purchase customer (hirer). Instalment covers the principal amount and the interest cost towards the purchase of an asset for the period the asset is utilized. The hiree charges interest on a flat basis.

CONTENTS OF HIRE PURCHASE AGREEMENT

a) the hire- purchase price of the goods (b) the cash price of the goods (c) the date on which the agreement shall be deemed to have commenced (d) the number of instalments by which the hirepurchase price is to be paid; and (e) the goods to which the agreement relates, in a manner sufficient to identify them

THE HIRER'S RIGHTS

Right of the hirer to terminate agreement at any time Right of hirer to purchase at any time with rebate

With the consent of the owner, to assign both the benefit and the burden of the contract to a third person.

THE HIRER'S OBLIGATIONS

Obligations of hirer to comply with agreement Obligation of hirer to take care of the goods Obligation of hirer in respect of use of goods Obligation of the hirer to give information as to the whereabouts of goods

THE OWNER'S RIGHTS

The owner has the right to terminate the agreement where the hirer defaults in paying the instalments or breaches any of the other terms in the agreement.
To claim damages for any loss suffered.

DIFFERENCE BETWEEN LEASE AND HIRE PURCHASE

PARAMETER
Ownership of the Asset

LEASE
Ownership lies with the lessor and is never transferred.

HIRE PURCHASE
Financer is the owner. The hirer becomes the owner of the asset/equipment immediately after the last instalment is paid. Hirer is entitled to claim depreciation benefit. Hire purchase agreements are done mostly for shorter duration and cheaper assets like hiring a car, machinery etc.

Depreciation

Duration

The lessor is entitled to claim depreciation benefit. Lease agreements are done for longer duration and for bigger assets like land, property etc.

DIFFERENCE BETWEEN LEASE AND HIRE PURCHASE

PARAMETER Repairs and Maintenance

LEASE
Financial lease: responsibility of the lessee Operating lease: it is the responsibility of the lessor

HIRE PURCHASE
In hire purchase, the responsibility lies with the hirer.

Extent of Finance

Lease financing can be called In case of hire purchase, the the complete financing option normally 20 to 25 % margin in which no down payments money is required to be paid are required upfront by the hirer