Evolution of Hire-purchase The British concept of hire-purchase has, however, been there in India for more

than 6 decates. The first hire-purchase company is believed to be Commercial Credit Corporation, successor to Auto Supply Company. While this company was based in Madras, Motor and General Finance and Instalment Supply Company were set up in North India. These companies were set up in the 1920s and 1930s. Development of Hire-purchase took two forms: consumer durables and automobiles. Consumer durables hire-purchase was promoted by the dealers in the respective equipment. Thus, Singer Sewing Machine company, or Murphy radio dealers would provide instalment facilities on hire-purchase basis to the customers of their products. The other side developed very fast - hire-purchase of commercial vehicles. The dealers in commercial vehicles as well as pure financing companies sprang up. The value of the asset being good and repossession being easy, this branch of financing activity flourished fast, although until recently, most of automobile financing business was in hands of family-owned businesses.

Hire purchase is an agreement to the sale of an asset subject to the following conditions: the goods are delivered at the beginning of the agreement on the basis that the hirer will pay an agreed amount in periodical installments mutually agreed upon; after the last installment is paid, the title of ownership will pass to the hirer; the hirer can terminate the agreement by paying all the balance installments and taking the title of the asset. The Hire Purchase Act 1972 defines a hire purchase agreement as ³an agreement under which goods are let on hire and under which the hirer has on option to purchase them in accordance with the terms of the agreement and includes an agreement under which 1. Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments 2. The property in the good is to pass to such persons on the payment of the last of such installments and that such person pays the agreed amount in periodical installments and 3. Such person has a right to terminate the agreement at any time before the property passes. Salient Features of Hire/Purchase:

hire/purchase installments over a specified period of time. The ownership of the asset is transferred after the hirer has paid the last installment. The terms and conditions relating to the usage of the asset. As the company is the owner. higher income would be realized. The first hire/purchase companies in India were the commercial Credit Corporation Ltd and Motor and General Finance Ltd which were set up in the beginning of this century to finance the transport sector. 4. Leading truck financers are Ashok Leyland Finance Co. The hire/purchase installments are payable monthly in advance. the following can be cited as differences between leasing and hire/purchase: . 4. 5. Each installment is treated as hire charge so that if default is made in payment of any one installment. Escorts Financial Services and Citi Mobile Finance. Banks are better placed in recovery of vehicle advances and borrowers would be benefited as more credit would be made available Advantages: The main advantages of hire/purchase to a company are: 1. Vehicle financing is broadly categorized into motors cars and trucks. defaults would be lower. Leasing Versus Hire/Purchase: From the hiree¶s point of view. Certain private banks and foreign banks have also entered this field through establishment of subsidiaries. Higher rate of interest can be charged and as the calculation is on the original advance. Amongst the motor car finance companies the leaders are Kotak Mahindra. attachment of the vehicle and subsequent sale even by private auction would keep the NPAs low. Presently Hire/purchase transactions are done on a large scale by finance companies. namely its maintenance insurance etc and the rights and obligations of the parties to the agreement are described in the hire/purchase agreement. Hire /Purchase in India: Hire/purchase has been in operation in India for an appreciable period of time. 3. 2.1.. SR Truck Finance etc. Hire/ purchase is a preferred transaction for banks as it is a superior method than hypothecation. The hirer is required to pay. The banks can effectively recycle the funds recovered. the seller is entitled to take away the goods. 2. As the borrowers would end up losing the installments paid as well as the vehicle. The hire purchases the equipment from the equipment supplier and lets it on hire to the hirer. 3.

Basically hirer have following rights. 2. Only the interest components of the hire/purchase installments tax deductible. not being the owner of the asset. 3.Leasing: 1. The lessee. if appropriate. The owner cannot unreasonably refuse consent where the nominated third party has good credit rating 4. The hirer being the owner of the asset enjoys the salvage value of the asset. Hire/ Purchase: 1. . compensate the owner for any loss in asset value) 3. With the consent of the owner. does not enjoy the salvage value of the asset. To return the goods to the owner ² 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. 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. Tax shields on depreciation and investment allowance cannot be claimed by the lessee. Tax shields on depreciation and investment allowance can be claimed by the hirer.1-Rights of protection 2-Rights of notice 3-Rights of repossession 4Rights of Statement 5-Rights of excess amount The hirer usually has the following obligations: 1. The entire lease rental is a tax deductible expense. to assign both the benefit and the burden of the contract to a third person. to inform the owner where the goods will be kept. to pay the hire installments 2. The hirer usually has the following rights: 1. to take reasonable care of the goods (if the hirer damages the goods by using them in a nonstandard way. he or she must continue to pay the installments and. 3. 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. 2.

An hirer can sell the products if an only if he has purchased the goods finally or else not to any other third party. .4.

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