WHAT IS HIRE PURCHASE

Hire Purchase is an agreement to hire an asset

over a predefined period with an option to purchase as the end of the agreement.
With a hire purchase agreement, after all the

payments have been made,the business customer becomes the owner of the equipment.This ownership transfer either automatically or on payment of an option to purchase fee.

Features of Hire Purchase

Buyer takes

possession of goods and agrees to pay

Installment treated

If buyer makes any

default in payment seller has right to reposses the goods from buyer.
Hirer has rite to

as hire charges
Ownership of

goods passes from buyer to seller..

terminate agreement any time before property passes.

Hire Purchase Agreement

Hire purchase agreement must contain:
Description of goods Price of goods Date of commencement of agreement Number of installment in which hire

purchase price to b paid,amount and due date.

Legal Position
Payment made in instalments over given

period. Posession is delivered to purchaser at time of enetering contract. Property in goods passes to purchaser on payment of last installment. Each instalment is treated as hire charge so if any default made in payment,seller is entitled to take away goods. Hirer is free to return goods without being required to pay further instalments falling due after return.

Hire purchase and credit sale

In case of Actual sale, title in the

property and in case of hire purchase, ownership remains with the seller until last instalment is paid.

Hire purchase and installment sale

In case of installment,it is not only

possession but also ownership of goods which is transferred to the buyer immediately at time of agreement.

Banks and Hire Purchase Business

Through recent notification issued on 7.9.1990 under clause(0) of subsection (1) of section 6 of Banking Regulation Act.,1949 the government of India has permitted banks to engage in Hire Purchase business.

Guidelines made as far as Hire Purchase business is concerned:

For the present,banks shall not

themselves undertake directly business oh hire purchase. Banks which have set-up subsidiaries for the business of leasing, merchant banking etc., may undertake hire-purchase business either through such subsidiary or through separate subsidiary. Existing or new bank subsidiary set up to transact business or shall engage itself in financing of other companies or engage in hire purchase business.

Shall not in aggregate exceed 10% of paid-

up capital and reserves of bank. Banks may invest in shares of other hp companies within limits specified in sec 19(2) of Banking Regulation Act,1949 with reserve banks. Any application to be made to Controller of capital Issues in connection with setting up new subsidiary shall need prior clearance from RBI. Banks setting up subsidiary for purpose of carrying hire-purchase business or through existing subsidiary furnish info as reserve

Bank credit for Hire Purchase business

Customer Purpose Amount Period Repayment Security