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HIRE PURCHASE CONTRACT INTRODUCTION Hire purchase (abbreviated HP) is the legal term for a contract, in this 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 closedend 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. Standard provisions To be valid, HP agreements must be in writing and signed by both parties. They must clearly set out the following information in a print that all can read without effort: 1. 2. 3. 4. 5. a clear description of the goods the cash price for the goods the HP price, i.e., the total sum that must be paid to hire and then purchase the goods the deposit 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) and 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 hirer 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 4. 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 nonstandard 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.

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.

Characteristics of Hire-purchase system


Before discussing the characteristics of hire-purchase system, we must know what is a hire purchase agreement and what are the contents of a hire-purchase agreement. Hire-purchase agreement means a contract between the hire vendor and the hire purchaser regarding the sale of goods under certain conditions. Usually every hire-purchase agreement shall contain the following terms:
y y y y y y

the cash price of the goods, cash price means the price at which goods may be purchased against cash payment. the hire-purchase price, hire purchase price means the total amount which is payable by the hire-purchaser under the agreement. the date on which the hire-purchase agreement will commence. the description of the goods that will be delivered to the hire-purchaser at the commencement of the agreement. the number of instalments to be paid by the hire-purchaser along with the amount of each instalment and the date of payment of each instalment. the down payment if any, the down payment means the amount which is required to be paid by hire-purchaser to the hire vendor at the time of commencement of hirepurchase agreement. the rate interest charged by the hire vendor (optional).

Characteristics of Hire-Purchase System The characteristics of hire-purchase system are as under


y y y y y y y y

Hire-purchase is a credit purchase. The price under hire-purchase system is paid in instalments. The goods are delivered in the possession of the purchaser at the time of commencement of the agreement. Hire vendor continues to be the owner of the goods till the payment of last instalment. The hire-purchaser has a right to use the goods as a bailer. The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer. The hire-purchaser becomes the owner of the goods after the payment of all instalments as per the agreement. If there is a default in the payment of any instalment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.

ADVANTAGES AND DISADVANTAGES


Despite the word hire, hire purchase is about ownership. If you use hire purchase to finance the purchase of a car it is actually committing to buying the car outright via a secured loan that is paid back monthly across the agrred period (usually 3 - 5 years). Monthly payments are therefore much higher than when leasing or using PCP.

Advantages of Hire Purchase

Hire purchase has several advantages over a personal loan: 1. 2. 3. Hire purchase is cheaper than a (unsecured) personal loan because the ownership of the car is retained by the finance company (ie; it is secured) and if you dont make your monthly payments then they will simply take the vehicle back. Hire purchase is relatively quick as it is offered directly by most dealers and manufacturers and is agreed to more easily than personal loans Deposits are lower than with personal loans

And compared to personal contract purchase (PCP), if the final balloon payment is paid to acquire the car, then a hire purchase agreement would likely have been cheaper overall even considering notably higher monthly payments And compared to personal contract hire, if you intend to own and retain the same car for more than 4 or 5 years, than hire purchase is cheaper over the long term than leasing because there are no further payments once you own it completely

Disadvantages of Hire Purchase


What are the disadvantages of hire purchase? Compared with personal contract hire or personal contract purchase: Often the finance company will expect all of the VAT for the whole value of the car to be paid with the first installment, whereas with leasing the upfront payment is only the equivalent of three months payments; 1. 2. 3. 4. the monthly payment required is always much higher; you are paying interest on the full value of the car, even if you dont intend to retain it for longer than 2-4 years; there are often hidden fees and individual dealers are not incentivised to offer you the best deal immediately so you would need to shop widely before being sure you have a good deal; the termination fee is significant if your circumstances change and you dont want the car anymore

And compared with a personal loan, you are not the owner of the car from day one so you can not modify or export it

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