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OBJECTIVE 1) To study the meaning of hire purchase 2) To study the rights of hirer and hire 3) To study the agreements

of hire purchase 4) To study the entries of hire purchase

METHODOLOGY Sources of data Sources of data are means from where information is collected for the study and analysis purpose. There are two sources of data collection, 1. Primary Data 2. Secondary Data. For this project I had only used secondary data. Secondary data- For this project I have also used secondary data. Secondary data are those data which are collected by the other person and which are used by the researcher for his present study. I have used the secondary data to understand the bank credit and investment function from the internet.

INTRODUCTION Hire purchase (abbreviated HP, colloquially sometimes never-never[1]) is the legal term for a contract, in which persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now be found in Australia, China, India, Jamaica, Japan, Malaysia, New Zealand, and South Africa. It is also called closed-end leasing. In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum) or return the goods to the owner. In Canada and the United States, a hire purchase is termed an installment plan; other analogous practices are described as closed-end leasing or rent to own. If the buyer defaults in paying the installments, the owner may repossess the goods, a vendor protection not available with unsecured-consumer-credit systems. HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different balance sheet and taxation treatment of hire-purchased goods beneficial to their taxable income. The need for HP is reduced when consumers have collateral or other forms of credit readily available.

MEANING AND CONCEPT OF HIRE PURCHASE Hire-purchase system is a special system of purchase and sale of goods. Under this system purchaser pays the price of the goods in installments. The installments may be annual, six monthly, quarterly, monthly fortnightly etc. Under this system the goods are delivered to the purchaser at the time of agreement before the payment of installments but the title on the goods is transferred after the payment of all installments as per the hire-purchase agreement. The special feature of a hirepurchase transaction is that the payment of every installment is treated as the payment of hire charges by the purchaser to the hire vendor till the payment of the last installment.. After the payment of the last installment, the amount of various installments paid is appropriated towards the payment of the price of the goods sold and the ownership or the goods is transferred to the purchaser. Thus hirepurchase means a transaction where the goods are sold by vendor to the purchaser under the following conditions:

The goods will be delivered to the purchaser at the time of agreement. The purchaser has a right to use the goods delivered. The price of the goods will be paid in installments. Every installment will be treated to be the hire charges of the goods which are being used by the purchaser.

If all installments are paid as per the terms of agreement, the title of the goods is transferred by vendor to the purchaser.

If there is a default in the payment of any of the installments, the vendor will take away the goods from the possession of the purchaser without refunding him any amount received earlier in the form of various installments

HISTORY OF HIRE PURCHASE


Hire purchase has been there in India for more than 6 decades. The first hire purchase company is believed to be Commercial Credit Corporation, successor to Auto Supply Company. This company was based in Madras. In north India, Motor and General Finance and Installment Supply Company was set up. This was around 1925. Consumer durables hire purchase was promoted by the dealers in the equipment. Singer Sewing Machine or Murphy radio dealers would provide installment facilities on hire purchase basis to the customers of their products. Hire purchase of commercial vehicles also has flourished fast.

FEATURES AND BENEFITS OF A HIRE PURCHASE


When you enter into a hire purchase arrangement, your financier is agreeing to purchase equipment or a vehicle on your behalf, and then hire it back to you over a set term. This means you have the use of the vehicle during that term, but dont own it. Other features of a hire purchase include: A loan term of between three and five years. As part of the hire agreement you can choose how long you want to hire your vehicle back for. You own the vehicle at the end. At the end of a hire purchase agreement, once you have made your final payment and any balloon payment you implemented, the vehicle is automatically yours. Upfront costs. When you first enter into a hire purchase you will need to make an initial loan payment and pay a deposit, stamp duty and registration fees. In some cases you can negotiate that some of these fees be added to the hire amount. Full monthly repayments. The monthly repayments due on your hire purchase will be calculated on the total amount of the purchase price, plus interest charges, duties and other loan fees. Do you want a balloon? With a hire purchase you can choose whether or not to have a balloon payment due at the end of the loan term. Having a balloon payment will lower your monthly repayments, but this amount will be payable at the end of the term, and you need it to correlate to the market value of the vehicle at the time.

More expensive insurance. When you are hiring a vehicle rather than buying it outright, your insurance company can often impose higher premiums. Keep, sell or refinance your hire purchase. At the end of the hire purchase term you can keep the car after you make your final payment and pay out any balloon. You can also sell or trade in the vehicle, but the risk of risk of dropping value now becomes yours. Or you can refinance the balloon amount over a new term if you want to keep the vehicle for a few more years. Unlimited miles. There are no limits to the miles you can put on the clock with a hired vehicle, but just keep in mind that the more miles the vehicle has, the lower its value will be at the end of the hire term. Tax benefits. With a hired vehicle you are able to claim depreciation of the purchase price, plus the interest charges on your loan, and the ongoing running costs of the vehicle, based on the percentage of business use.

ADVANTAGES AND DISADVANTAGE OF HIRE PURCHASE ADVANTAGES OF HIRE PURCHASE Spread the cost of finance. Whilst choosing to pay in cash is preferable, this might not be possible for consumer on a tight budget. A hire purchase agreement allows a consumer to make monthly repayments over a pre-specified period of time. 1) 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. 2) Higher acceptance rates The rate of acceptance on hire purchase agreements is higher than other forms of unsecured borrowing because the lenders have collateral; 3) Sales A hire purchase agreement allows a consumer to purchase sale items when they aren't in a position to pay in cash. The discounts secured will save many families money; 4) Debt solutions Consumers that buy on credit can pursue a debt solution, such as a debt management plan, should they experience money problems further down the line.

DISADVANTAGES OF HIRE PURCHASE 1) Personal debt A hire purchase agreement is yet another form of personal debt it is monthly repayment commitment that needs to be paid each month. 2) Final payment A consumer doesn't have legitimate title to the goods until the final monthly repayment has been made. 3) Bad credit. All hire purchase agreements will involve a credit check. Consumers that have a bad credit rating will either be turned down or will be asked to pay a high interest rate; 4) Creditor harassment Opting to buy on credit can create money problems should a family experience a change of personal circumstances. 5) Repossession rights A seller is entitled to 'snatch back' any goods when less than a third of the amount has been paid back. Should more than a third of the amount have been paid back, the seller will need a court order or for the buyer to return the item voluntarily.

DIFFERENT METHOD OF HIRE PURCHASE


FUNCTION Hire purchases are used to acquire houses, automobiles, furniture, and other large items that generally cannot be paid in a lump sum. Hire purchases function as legal documents for which the lender can legally hold the title until the item is paid in full. TYPES A hire purchase can be an installment or deferred payment plan. In the former, a set monthly payment is paid on a certain day each month for a specified length of time. After the last payment, the item becomes the purchaser's property. In the latter, the property immediately belongs to the purchaser while payments are regularly made. TIME FRAME A hire purchase can be for a few months up to many years. The interest rate can vary from low to high, depending on the institution granting the agreement. Usually, a more expensive item will be set up for 10, 15, or more years. Typically, a mortgage covers a span of 30 years. FACTS To be valid, a hire purchase must be signed by both parties. It should contain a description of the item, the price paid, the deposit (if any), monthly amounts due, statement of each party's rights, and requirements, if any, for early termination.

BENEFITS Hire purchase allows a person to buy an item, such as a house, over a long period of time. With such an agreement, the buyer can enjoy his property while making payments. The buyer also has the right to sell the property and allow the new purchaser possession of his house. WARNING If the purchaser fails to make the installments in a timely manner, the lender has the right to repossess the property or item. In severe cases, the purchaser may file for foreclosure or bankruptcy, at which time the item's ownership will be returned to the lender. CONSIDERATIONS Generally, a person must be at least 18 years of age to enter into a valid hire purchase. There is no upper age limit to incurring such a purchase agreement. Each person should carefully consider his financial position before incurring any type of hire purchase.

STANDARD PROVISIONS OF HIRE PURCHASE To be valid, HP agreements must be in writing and signed by both [parties].They must clearly lay out the following information in a print that all can read without effort: 1. A clear description of the goods 2. The cash price for the goods 3. The HP price, i.e., the total sum that must be paid to hire and then purchase the goods 4. The deposit 5. The monthly installments (most states require that the applicable interest rate is disclosed and regulate the rates and charges that can be applied in HP transactions). 6. A reasonably comprehensive statement of the parties' rights (sometimes including the right to cancel the agreement during a "cooling-off" period). 7. The right of the hire to terminate the contract when he feels like doing so with a valid reason.

THE SELLER AND THE OWNER If the seller has the resources and the legal right to sell the goods on credit (which usually depends on a licensing system in most countries), the seller and the owner will be the same person. But most sellers prefer to receive a cash payment immediately. To achieve this, the seller transfers ownership of the goods to a Finance Company, usually at a discounted price, and it is this company that hires and sells the goods to the buyer. This introduction of a third party complicates the transaction. Suppose that the seller makes false claims as to the quality and reliability of the goods that induce the buyer to "buy". In a conventional contract of sale, the seller will be liable to the buyer if these representations prove false. But, in this instance, the seller who makes the representation is not the owner who sells the goods to the buyer only after all the installments have been paid. To combat this, some jurisdictions, including Ireland, make the seller and the finance house jointly and severally liable to answer for breaches of the purchase contract Implied warranties and conditions to protect the hirer The extent to which buyers are protected varies from jurisdiction to jurisdiction, but the following are usually present: 1. The hirer will be allowed to enjoy quiet possession of the goods, i.e. no-one will interfere with the hirer's possession during the term of this contract 2. The owner will be able to pass title to, or ownership of, the goods when the contract requires it 3. That the goods are of merchantable quality and fit for their purpose, save that exclusion clauses may, to a greater or lesser extent, limit the Finance Company's liability Where the goods are let by reference to a description or to a sample, what is actually supplied must correspond with the description and the sample.

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 4. Where the owner wrongfully repossesses the goods, either to recover the goods plus damages for loss of quiet possession or to damages representing the value of the goods lost.

THE HIRER'S OBLIGATIONS The hirer usually has the following obligations: 1. To pay the hire installments 2. To take reasonable care of the goods (if the hirer damages the goods by using them in a non-standard way, he or she must continue to pay the installments and, if appropriate, compensate the owner for any loss in asset value) 3. To inform the owner where the goods will be kept. 4. A hirer can sell the products if, and only if, he has purchased the goods finally or else not to any other third party. It is pretty much similar to installment but the main difference is of ownership.

THE OWNER'S RIGHTS The owner usually has the right to terminate the agreement where the hirer defaults in paying the installments or breaches any of the other terms in the agreement. This entitles the owner: 1. To forfeit the deposit 2. To retain the installments already paid and recover the balance due 3. 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) 4. To claim damages for any loss suffered

HIRE PURCHASE V/S LEASING


1) The hire has the option to purchase the goods 2) Is a method of financing business assets & consumer articles 3) Depreciation & investment allowance can be claimed 4) Only the interest is tax component deductible 5) Hirer enjoys the salvage value of the asset 6) 20-25% deposit is required in hire purchase 7) In hire purchase we purchase the goods 8) The extent of finance is not100% because of down payment The extent of finance is 100% as no down payment required In leasing we rent the goods No deposit is required in leasing salvage value of the asset In leasing the lessee has no option to buy the goods Is a method of financing business assets only Depreciation & investment allowance cannot be claimed Entire lease rental is tax deductible

9) Hirer bears the cost of maintenance Maintenance cost is borne by the lessor except in finance lease

HIRE AND PURCHASE AGREEMENT DEFINITION


HIRE AND PURCHASE AGREEMENT is a contract (more fully called contract of hire with an option of purchase) in which a person hires goods for a specified period and at a fixed rent, with the added condition that if he shall retain the goods for the full period and pay all the installments of rent as they become due the contract shall determine and the title vest absolutely in him, and that if he chooses he may at any time during the term surrender the goods and be quit of any liability for future installments upon the contract. In the United States such a contract is generally treated as a conditional sale, and the term hire purchase is also sometimes applied to a contract in which the hirer is not free to avoid future liability by surrender of the goods. In England, however, if the hirer does not have this right the contract is a sale.

INTRODUCTION TO HIRE PURCHASE


Purchase and sale of goods under Hire-Purchase system is governed by the HirePurchase Act, 1972. This Act was passed on 8th June, 1972 and came into force w.i.e. September 1, 1973. Here, the word hire denotes, the sum payable periodically by the hirer under a hire-purchase agreement. Under the Hire Purchase System, the owner of the goods lets his goods on hire and gives an option to the hirer to purchase the goods in accordance with a specific agreement called Hire Purchase Agreement. Agreement includes: Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments. The property in the goods is to pass to such person on the payment of the last of such installments Such person has a right to terminate the agreement at any time before the property so passes. Hire-Purchase Price means the total sum payable by the hirer under a hirepurchase agreement in order to complete the purchase of, or the acquisition of property in, the good to which the agreement relates and includes and sum so payable by the hirer under hire-purchase agreement by way of a deposit or other initial payment, or credited or to be credited to him under such agreement on account of any such deposit or payment, whether that sum is to be or has been paid to the owner or to any other person or is to be or has been discharged by payment

of money or by transfer or delivery of goods or by any other means; but does not include any sum payable as a penalty or as compensation or damages for breach of the agreement. Hirer means the person who obtains or has obtained possession of goods from an owner under a hire-purchase agreement, and includes a person to whom the hirers rights or liabilities under the agreement have passed by agreement or by operation of law. Owner means the person who lets or has let, delivers or has delivered possession of goods; to a hirer under a hire-purchase agreement have passed and includes a person to whom the owners property in the goods or any of the owners right or liabilities under the agreement has passed by the assignment or by operation of law.

CONTENTS OF HIRE-PURCHASE AGREEMENT According to the Act, every hire-purchase agreement shall state: The Hire-Purchase price of the goods to which the agreement relates.

The cash price the goods, that is to say, the price at which the goods may be purchased by the hirer for cash. The date on which the agreement shall be deemed to have commenced The number of installments by which the hire-purchase price is to be paid, the amount of each of those installment, and the date, or the mode of determining the date, upon which it is payable, and the person to whom and the place where it is payable. The goods to which the agreement relates, in a manner sufficient to identify

them.

Hire Purchase Agreement Participants

1) The Finance Company The customer agrees with the finance company to use the vehicle for a certain period, provided there is settlement of initial fees. When the payments are fully made, the customer has the option of car ownership by purchasing it by also paying the Option to Purchase fee. 2) The Dealer The dealer is the middle man with whom the customer makes the initial arrangement. He sends the draft of the sale to the finance company. Once accepted, the contract will be signed by the customer and the finance company will be invoiced by the dealer. In essence, the finance company pays for the purchase and allows the customer to use the it. The latter in turn, pays the company on an agreed term. 3) Customer (Debtor) The customer is a main participant in the agreement as he is the ultimate owner of the purchased unit once he has paid it in full subject to the agreed conditions. In order to conclude a Hire Purchase Agreement, one of the following has to take place: Early Settlement Once the customer is able to pay the full settlement and has decided to pay the loan in full even ahead of the agreed time, he may do so at any time. The customer also needs to pay to the lender the Option to Purchase fee. Depending on the lender, he may give the buyer a rebate on the unused interest. But the minimum amount of the rebate is dictated by law if the agreement is regulated by Consumer Credit Act.

End of Contract/ Agreement When all the agreed payments are made at the end of the contract for Hire Purchase, the customer usually pays the Option to Purchase fee and then be the legal owner of the unit. But even when the car was fully paid, it can be returned if the buyer wants to. A fee will be set by the finance company, a minimum of 1 without any maximum limit. 4) Charges / Fees Usually, finance companies charge a starting fee, often known for different terms such as set up fee, administration fee, facility fee or documentation fee. And the final payment is the Option to Purchase fee which signals the official transfer of the goods to the buyer. With Hire Purchase Agreements, no mileage condition is in effect. Prior to entering the Personal Contract Purchase, take note of the following: 1. A Hire Purchase Agreement is a contract between a debtor (customer) and a lender (Finance Company). At the end of the agreement or at any point before that, the debtor has the option to own the purchased goods. 2. The customer may pay a deposit plus interest. The remaining amount and other interests may be settled over a certain fixed period. 3. Other fees, such as facility fee or acceptance fee may be included in the contract. 4. Up until the customer settles the Option to Purchase fee, the title remains in the hands of the Finance Company.

ACCOUNTING FOR HIRE PURCHASE Hire purchase is an agreement between two parties in which one party purchase any asset from other party. Because he has no money to pay, so he pays per month hire charges. Vendor has the possession of asset. When buyer pays total price of assets in the form of hire charges, then asset is transferred to its purchaser. Vendor may also transfer asset before last payment of installment on his own risk. If buyer will become defaulter, vendor has right to get his asset from hire purchaser. Accounting Methods for Hire Purchase Transaction For accounting point of view both hire purchase and installment payment system are same. Before accounting, we should know following things a) Cash price is that price which will be paid if any asset is purchased on cash without installment. b) Hire price = cash price + interest for risk of giving asset on installment. c) Down payment = Payment at the beginning of deal of hire purchase.

There are four methods of accounting for hire purchase 1st Method: Cash Price Method Under cash price method, we are deal hire purchase transactions just like normal transactions. When transactions or event happen, we record them. Journal Entries in the books of Purchaser Particulars a) For buying assets on hire purchase Asset on hire purchase account To Vendor account b) For paying the down payment to vendor Vendor account To Cash/ bank c) When Interest is Due on unpaid installments Interest on Hire Purchase account To Vendor Account Dr. Amount

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d) For Installment Payment ( Interest payment will be also included in it) Vendor Account Dr. To Cash / Bank account e) For transferring interest to profit and loss account Profit and Loss account To Interest on hire purchase account f) For depreciation charge Depreciation account To Assets on hire purchase account g) If Asset is returned Hire Vendor account To Asset on hire purchase account

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IN THE BOOKS OF HIRE VENDOR


PARTICULARS a) For giving assets on hire Hire purchaser account To H.P. Sale b) For down payment received Bank account To H.P. Sales c) For Interest receivable Hire purchaser account To Interest account d) For installment due Installment due account To H.P. Sales e) For installment received Bank account To Hire purchaser account f) For installment not due at the year Hire purchase stock account To Trading account g) For stock reserve Stock Reserve account To Hire purchase stock account AMOUNT

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2ND METHOD INTEREST SUSPENSE METHOD


In this method, we open interest suspense account. All the interest which is not paid on hire purchase asset will go to interest suspense account. When interest will become due, interest account will be debit and interest suspense account will credit. Following entries will pass in the books of hire buyer Particulars a) For transferring total interest payable on hire purchase deal Interest suspense account To Hire purchase account b) When interest is due Interest account To Interest suspense account All other entries will be same as first method. Dr. Dr. Amount

IN THE BOOKS OF HIRE VENDOR


a) For transferring total interest payable to interest suspense account Hire purchaser account To Interest suspense account b) when interest is due Interest suspense account To Interest account all journal entries will be same of first method Disclosure in the balance sheet Current Assets Hire purchase debtors Less balance in interest suspense account Dr. Dr.

3RD METHOD: TRADING METHOD In this method, the hire purchase trading account is prepared in the book of vendor of asset in the form of hire purchase system. 4TH METHOD: STOCK AND DEBTOR METHOD In this method, hire purchase stock, hire purchase debtor and hire purchase adjustment account are maintained. Following entries will pass in the books of vendor a) When goods are sold on hire purchase Hire purchase stock account Dr. ( Hire purchase price) To stock account ( Actual cost of sale of goods ) To Hire purchase adjustment account ( difference between hire purchase price and actual cost ) b) When installments become due for payment Hire purchase debtors account To Hire purchase stock account c) When cash is received Cash account To Hire purchase debtor account d) stock reserve account on opening stock stock reserve account To Hire purchase adjustment account e) Stock reserve on closing stock Hire purchase adjustment account To Stock reserve account Dr.

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CALCULATION OF INTEREST The total payment made under hire-purchase system is more than cash price. In fact, this excess of payment over the cash price is interest. It is very essential to calculate interest because the amount paid for interest is charged to revenue and the asset is capitalized at cash price. Thus normally all installments will include a part of cash price and a part of interest on the outstanding balance. However the amount paid at the time of agreement (down payment) will not include any interest. The calculation of interest is made under two conditions: (a) When interest is included in amount of installment: Where the hire-purchase price i.e. payment made in the form of down payment and all installments is more than the cash price, it is regarded that the interest is included in installments. It is explained in the following example.

Worked out Example-1 (Calculation of Interest) On Ist April,2005 Mr. X purchased from M/s Y & Co. one 'Motor Truck' under hire-purchase system, Rs. 5,000 being paid on delivery and the balance in five annual installments of Rs. 7,500 each payable on 31st March each year. The cash price of the motor truck is Rs. 37,500 and vendors charge interest at the rate of 5 per cent per annum on yearly balances. Find out the amounts of principal and interest included in each installment.

(b) When interest is not included in installments: Where the total amount paid in the form of down payment and all installments is exactly equal to the cash price, it is regarded that the interest is not included in installments. It means that interest is payable in addition to the agreed amount of installment. It is explained in the following example. Worked out Example-2 (Calculation of Interest): On April 1, 2005, A Transport Company purchased a Motor Lorry from Motor Supply Co. Ltd. on hirepurchase basis, the cash price being Rs. 60,000. Rs. 15,000 on signing of the contract and balance in three annual installments of Rs. 15,000 each on 31st March every year. In addition to it, interest at 5 per cent per annum was also payable to vendors on outstanding balances.

CASE STUDY: HIRE PURCHASE


This study attempts to analyze the quantitative as well as qualitative information to identify and evaluate the performance and current state of affairs of finance companies in the field of hire purchase financing in Pokhara. The study reveals that the credit-deposit ratios are very satisfactory. The relationship between total deposit collection and total loan to hire purchase loan is highly significant. The businessperson and professional users are predominantly rushing in utilizing the hire purchase financing due to the easy payment terms. The IRR on hire purchase loan is normally higher than their explicit rate of interest and service charge. Except in few cases, there are loan defaulters in all finance companies. In general, the performance of finance companies in hire purchase financing is satisfactory. The Commonest method OF selling property is the cash sale. The credit sale system is an alternative method of cash sale. The third system of selling property is the installment system. In, installment system, property are delivered to the buyer immediately but payments is made in periodic installments such as weekly or monthly, quarterly or half-yearly or yearly so on. Hire purchase and installment purchase systems are the major parts of installment system. However, hire purchase installment system is the prime concern of this study. With an increasing demand for better life, the consumption of property has been on the uprising scale. This has not been backed up by adequate purchasing power, transforming it into effectual demand (Mukharjee and Hanif 1998). This has created the market for hire purchase system. When a person is unable to acquire an asset against immediate cash payment, he may arrange with the vendor to stagger the payment. Financial institution plays role of facilitators between buyer and seller to enter into the hire purchase agreements.

Hire purchase agreement makes it possible for businesspersons, professionals and others to take advantage of assets all of which enable them to organize and operate their activities effectively. After the liberalization policy introduced in 1990, the financial sector especially the finance companies have contributed significantly to increase the hire purchase business in Nepal. In this study, therefore, an attempt has been made to analyze the current performance of finance companies in Pokhara in the field of hire purchase financing.

SAMPLE: AGREEMENT TO PURCHASE REAL ESTATE The undersigned (herein Purchaser) hereby offers to purchase from the owner (herein Seller) the real estate located at_______________in the city of__________________________, County of_________________, State of_______________________, the legal description of which is:___________________________________________________________ _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ Upon the following terms and conditions: 1. Purchase Price and Conditions of Payment The purchase price shall be_____________________Dollars ($______) to be paid in accordance with subparagraph________________________, below: A: Cash. The purchase price shall be paid in its entirety in cash at the time of closing the sale. B: Cash Subject to New Mortgage. The purchase price shall be paid in cash at the time of closing the sale Subject, however, to Purchasers ability to obtain a first mortgage loan within __________days after the acceptance of this offer by Seller in the amount of $______________, payable in not less than ______________monthly installments, including interest at a rate not to exceed _____________% financing. If such financing cannot be obtained within the time specified above then either Purchaser or Seller may terminate this agreement and any earnest money deposited by Purchaser will be promptly refunded.

C: Cash Subject to Existing Mortgage. The purchase price shall be paid in cash at the time of closing the sale after deducting from the purchase price the then outstanding balance due and owing under the existing mortgage in favor of _____________, dated_____________, 20___, in the original amount of $________________; of such mortgage debt is approximately $________________ as of _________________, 20____. D: Cash with Assumption of Existing Mortgage. The purchase price shall be paid in cash at the time of the closing of the sale after deducting from the purchase price the then outstanding balance due and owing under the existing mortgage in favor of _______________, dated_________________, 20___, having a present balance of approximately $___________________, as of _______________, 20___, which the purchaser hereby assumes and agrees to pay in accordance with its terms and to perform all of it provisions; purchaser shall pay any and all payments coming due after the closing of the sale. Any transfer fees required by the mortgage shall be paid by________________. E: Sale by Land Contract. The purchase price shall be paid in accordance with the certain land contract attached hereto and incorporated into this contract by this reference. The down payment to be made at the time of closing this sale shall be $_____________and the balance of $_________shall be paid at the rate of ___________% per annum.

2. Earnest Money Deposit As earnest money Purchaser deposits $__________________with the broker which shall be applied to the purchase price at the time of closing the sale. In the event that this offer is not accepted by Seller this earnest money deposit shall be promptly refunded to Purchaser by the broker. In the event that this offer is accepted by Seller

and Purchaser shall fail to perform the terms of this agreement the earnest money deposit shall be forfeited as and for liquidated damages suffered by Seller. Seller is not, however, precluded from asserting any other legal or equitable remedy, which may be available to enforce this agreement.

SAMPLE (continued) 3. Real Estate Taxes, Assessments, and Adjustments Real Estate Taxes accrued against the property shall be prorated through the date of closing the sale and Seller shall pay all taxes allocated to the property through that date of acceptance of this offer to purchase. Rents, if any, shall be prorated through the date of closing and all rent deposits shall be transferred to Purchaser. Existing casualty insurance shall be canceled/prorated through the date of closing. 4. Title to the Property: Seller shall provide purchaser prior to the closing and promptly after the acceptance of this offer, at Sellers expense and at Sellers option an abstract of title to the property brought down to date or an owners policy of title insurance in an amount equal to the purchase price, said abstract of policy to show marketable or insurable title to the real estate in the name of Seller subject only to easements, zoning and restrictions of record and free and clear of all other liens and encumbrances except as stated in this offer. If the abstract or title policy fails to show marketable or insurable title in Seller a reasonable time shall be permitted to cure or correct defects. Seller shall convey title to Purchaser at the time of closing by a good and sufficient general warranty deed free and clear of all liens an encumbrances except as otherwise provided in this offer and subject to easements, zoning and restrictions of record.

5. Possession of the Property Purchaser shall be given possession of the property on _______________, 20____. A failure on the part of Seller to transfer possession as specified will not make Seller a tenant of Purchaser, but in such event Seller shall pay to Purchaser $____________________per day as damages for breach of contract and not as rent. All other remedies, which Purchaser may have under law, are reserved to Purchaser. 6. Risk of Loss The risk of loss by destruction or damage to the property by fire or otherwise prior to the closing of the sale is that of Seller. If all or a substantial portion of the improvements on the property are destroyed or damaged prior to the closing and transfer of title this agreement shall be void able at Purchasers option and in the event Purchaser elects to avoid this agreement the earnest money deposited shall be promptly refunded. 7. Improvements and Fixtures Included This offer to purchase includes all improvements, buildings and fixtures presently on the real estate including but Not limited to electrical, gas, heating, air conditioning, plumbing equipment, built-in appliances, hot water heaters, screens, storm windows, doors, Venetian blinds, drapery hardware, awnings, attached carpeting, radio, television antennas, trees, shrubs, flowers, fences and_____________________________________ _____________________________________________________________ _____________________________________________________________ __________________________________________________

8. General Conditions It is expressly agreed that this agreement to purchase real estate includes the entire agreement of Purchaser and Seller. This agreement shall be binding upon the heirs, personal representatives, successors and assigns of both Purchaser and Seller. This agreement shall be interpreted and enforced in accordance with the laws of the State of_________________________.

SAMPLE (concluded) 9. Special Conditions _____________________________________________________________ _____________________________________________________________ ____________________________________________________________ _____________________________________________________________ 10. Time for Acceptance and Closing This offer is void if not accepted by Seller in writing on or before _________________________ A.M. /P.M. of the __________________________day of ____________________ 20____. Closing of the sale shall take place _____________ days after Purchasers receipt of an abstract showing Marketable title in Seller or title insurance binder showing insurable title in Seller. This offer is made at ______________________________, State of ____________________, this ____________________ day of ________________________________, 20_______. ____________________________ (PURCHASER) ____________________________ (PURCHASER)

Acceptance by Seller The foregoing offer to purchase real estate is hereby accepted in accordance with the terms and conditions specified above. The undersigned hereby agrees to pay a brokerage fee of $_______________________ to __________________, broker, in accordance with the existing listing contract. Dated this ____________________________ day of _____________________________, 20_____. ____________________________ (SELLER) ____________________________ (SELLER)

CONCLUSION In todays world, asset based financing has formed an integral part of the Financing scenario. This is because firms today cant afford to buy the equipments and machineries outright. At present not all firms are that financially sound. Firms find it extremely difficult to obtain the financial aid from the normal sources. Firms that have the financial capacity prefer to hire or lease the equipments, it releases the financial burden as well as provides tax benefit of depreciation. Especially, Project financing has come of age as most of the banks today are into project financing. Earlier, it was chartered accountants who indulged into project financing but now it is more of bank involvement. But today the growth in Project Finance is low whereas lease and hire purchase are on an upward trend with more and more companies providing their products on hire. So in the changing economic and financial environment of India, hire purchase financing has assumed an extremely important role.

BIBLIOGRAPHY

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