Hire Purchase.pptx

This ppt will explain the basic concept of Hire Purchase with features .

1. By MS Ashwitha Shetty Assistant Professor Department of Commerce(UG) Kristu Jayanti College Autonomous – Bengaluru

2. Meaning Hire purchase is an arrangement for buying expensive goods, where the buyer makes an initial down payment and pays the balance plus interest in installments . A  hire purchase  ( HP ), [1]  also known as an  installment plan , is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment (e.g., 40% of the total) and repaying the balance of the price of the asset plus interest over a period of time.

3. Hire Purchase System These types of agreements are generally used for very expensive goods . In a hire purchase agreement, ownership is not transferred to the purchaser until all payments are made. The seller of goods deliver the goods to the buyer without transferring the ownership of goods If buyer pays all the installment the ownership of the goods will be transferred

4. Feature of HP HP is an agreement between two parties called hire vendor and Hire purchaser The hire purchaser becomes the owner of the asset after paying the last installment. Every installment is treated as hire charge for using the asset. If the hirer does not want to own the asset, he can return the assets any time and is not required to pay any installment that falls due after the return. The hirer cannot pledge, sell or mortgage the assets as he is not the owner of the assets till the last payment is made.

5. Parties of Hire Purchase

6. Installment payment system An instalment payment system is a credit sale system in which payments are made in instalments over a period of time . In this system, the buyer gets the possession of the goods as well as the ownership of the goods right at the time of signing the agreement . Under this system, the buyer becomes the owner of the goods immediately on signing the contract of sale. 

7. Feature of Installment payment system The installment purchase system is just like an absolute credit sale of goods . The buyer makes the payment in different installments over a period of time as agrees upon in the agreement Under the installment purchase system, the buyer gets the immediate possession as well as the ownership of goods.  Since ownership has passed the buyer cannot return the goods to the seller if he or she does not like the product . The seller can not responses the good if the buyer made default in the payment of installment but he/she can sue against the buyer for the recovery of the amount due . In case of default in the payment of installment, the total amount of installments already paid by the buyer can not be surrendered. T he buyer can sell or mortgage the goods even before clearing all the installments.

8. Importance terms and provision under Hire purchase Hire Purchaser : He is a person who obtain the possession of goods Hire Vendor : He is the person who owns the goods Cash Price : It is the price at which goods are sold under “contract of sale” Hire Purchase Price : This is the total amount you will pay over the life of the loan. The hire purchase price is the monthly payment or instalment multiplied by the number of instalments which you have to make . Installment Money :It refers to a part of hire purchase price paid by hire purchaser periodically Deposit : It means any money payable by the hirer by way of deposit. Hire Purchase Charges : it is the difference between net hire purchase and net cash price of the goods

9. Rights of Hire Vendor Right to get the full payment for the goods sold under hire purchase system . Right to terminate the hire purchase agreement for default in payment of hire or unauthorized act or breach of express conditions contained in the hire purchase agreement by the hirer . Right to forfeit (penalty) the initial deposit on termination of the hire purchase agreement . Right to recover possession of the goods on termination of the hire purchase agreement . Right to claim damage for non-delivery of the goods from the date on which termination of the hire purchase agreement is effective to the date on which goods are delivered to or seized by the owner.

10. Rights of a hire purchaser Right to get possession of the goods on the date of signing the hire purchase agreement . Right to purchase the goods at any time with rebate. Right to terminate the hire purchase agreement at any time before the final payment . Right to appropriate payments in respect of two or more agreements.

11. Rebate A rebate is a payment back to a buyer of a portion of the full purchase price of a good or service A rebate is a partial refund of the cost of an item . For example, a rebate agreement states if a customer purchases 1,000 units of product, then they can claim a 5% rebate. Each unit is $100, so if the buyer purchases 1,000 units, the buyer can claim a rebate reward of $5,000. This would be a volume incentive rebate.

12. Formula For Calculating the Rebate Rebate = 2/3 X Hire Charges X No of Instalments Due / Total Number of Installment