HIRE PURCHASE FINANCE

PRESENTED BY: Manisha 132

A transaction of finance whereby goods are bought and sold as per terms and conditions specified below is known as hire purchase. Payment of periodic instalments. Immediate possession of goods by the buyer. Ownership of goods remaining with vendor. Vendors right to repossess the goods in the event of default committed by buyer.

Popular method Retention Right Installments Ownership Agreement Possession Default

No Immediate cash Economic Growth Thrift Relief to Buyer

Formal Agreement Document Property Owner

The hire purchase Act 1972 provides the following rights to hirer: Right of protection. Right of notice.

Rate of interest
1.

2.

Add-on Rate of interest: Rate of interest which is chargeable in hire purchase as a percent of the original cash price of the asset. Effective rate of interest: Trial rate at which NPV of future HP instalments is zero.

METHODS OF INTEREST CALCULATION

Effective rate of interest.

Straight line method.

In this method the effective rate of interest is calculated by IRR technique. Effective rate of interest is that rate of interest , which equates the PV of all futures annual installments payments with the HP payable at the beginning of hire purchase contract.

Annual amount of interest= Total amount of interest for HP period/ No. of HP periods.

Available to only reputed Buyers Danger of losing even the paid installments Higher price making the purchase an expensive proposition