Introduction :-
When the goods are sold the purchaser may be either make the
full payment at one time or may defer the payment. When the payment is
deferred, the amount may be paid in monthly, quarterly or yearly installments.
When the price of an article is paid by installments, the total amount paid is
higher than the actual cash price of the article. The excess price is the
charge for interest and the risk involved. This arrangement of making the
payment in installments is beneficial to both the seller and the buyer. The seller
is able to sell more goods and the buyer can buy expensive items with his
limited resources. There are two systems of deferred payments, namely, (i) Hire
Purchase System, and (ii) Installment Payment System. In this unit we will
learn in detail about the Hire Purchase System.
Meaning of Hire
Purchase :-
The term ‘hire purchase’ originated in the United Kingdom and
this is similar to rent-town system in the United States of America. Hire
Purchase system is a system in which the goods are delivered to the purchaser
at the time of agreement before the payment of installments but the title of
the goods is transferred after the payment of all installments as per the hire
purchase agreement. It is a special
system of purchase and sale of goods. Under this system the purchaser pay the
price of goods in installments.
Definition Of Hire
Purchase :-
According to Section 2(c) of the Hire Purchase Act, 1972 the
hire purchase agreement is an agreement under which the goods are let on hire
and the hirer has an option to purchase them in accordance with the terms of
the agreement and includes an agreement under which
i) possession of goods is delivered by the owner thereof to a
person on condition that such person pays the agreed amount in periodical
installments,
ii) the property in the goods is to pass to such person on
the payment of the last of such installments,' and
iii) such person has a right to terminate the agreement at
any time before the property so passes.
Characteristics / Feature / Nature of Hire Purchase :-
(1) There is an agreement between the seller (called, hire
seller or hire vendor) and the buyer (called, hire purchaser or hirer) and this
agreement is called, hire purchase agreement.
2) As the purchase price is not paid in one lump sum at the
time of time of purchase, it (i.e., hire purchase) is a kind of credit
purchase.
3) Conditions of Hire Purchase Agreement as follows :-
i) The goods will be delivered to the purchaser at the time
of the agreement
ii) The purchaser has a right to use the goods delivered
iii) The price of the goods will be paid in the installments.
iv) Every installment will be treated to be the hire charges
of the goods which is being used by the purchaser.
v) If all the installments are paid as per the terms of
agreement, the title of the goods is transferred by the vendor to the
purchaser.
vi) If there is 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 installments.
4) The hire vendor transfers only the possession of goods to
the hire purchaser immediately after the agreement of hire purchase is made.
5) Hire purchase system is governed under the Hire Purchase
Act, 1972. This act came into force on 1 September, 1973.
6) TERMINOLOGY: The following terms are used in the agreement
of hire purchase:
> Hire Purchaser: The buyer in the hire purchase agreement
who purchases the goods on hire basis
> Hire Vendor: The seller in the hire purchase agreement
who sell the goods on the hire basis.
> Cash Payment: The amount to be paid on outright purchase
in cash.
> Down Payment: Initial payment made at the time of
signing the hire purchase agreement.
> Hire Purchase Price: The amount to be paid if the goods
are purchased under the hire purchase system. It includes cash price and
interest on future installments.
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