Hire Purchase System.pptx

Meaning of Hire Purchase
Essential Features of Hire Purchase System
Meaning of Installment Purchase System
Features of Installment Purchase System
Important Terms and Provisions under Hire Purchase

1. HIRE PURCHASE SYSTEM Dr. Panduranganagouda Honnali Assistant Professor Department of Professional Accounting and Finance Kristu Jayanti College (Autonomous) Bangalore – 560077

2. HIRE PURCHASE SYSTEM Introduction When goods are sold on credit, for which payment is made by the buyer in installments over a period of time, it is called Hire Purchase System or Installment System. Hire Purchase and Installment Purchase are two common methods of financing purchases . Both involve paying for goods over time , but there are some important differences between them. In this presentation, we will explore these differences and their implications for consumers

3. Hire Purchase is a type of financing where the buyer pays for an item in installments while using it. The buyer does not own the item until the final payment is made. This method is commonly used for purchasing cars, furniture, and other large items. The interest rates are typically higher than other types of financing Meaning of Hire Purchase

4. “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.” Meaning of Hire Purchase

5. The system of hire purchase can be better understood with the help of its features. The following are the characteristic features of hire purchase system. Hire purchase is an agreement between two parties called Hire vendor and Hire purchaser . The agreement provides for parting the possession of goods, by the seller, with an option to purchase or hires the goods by buyer. Payment for the goods will be made by the hire purchaser in installments. If the hire purchaser pays all the installments, the ownership of the goods will be transferred on payment of last installment, resulting the transaction in 'purchase,' Essential Features of Hire Purchase System

6. If the hire purchaser stops paying the installments, the hire vendor repossesses the goods, the resulting the transaction in 'hire.' In such case, each earlier installment paid will be treated as hire charges. In case of the transaction resulting in purchase, each installment paid will be inclusive of (a) Payment towards price of the goods (i.e., principal amount) and (b) Payment of interest. Essential Features of Hire Purchase System

7. Meaning of Installment Purchase System Installment payment system (also called the Deferred installments) is a system where the buyer given the ownership as well as the possession of the goods at the time of signing the contract. Buyer has the facility to pay the price in installments. According to Carter, "Under Installment system, property in goods or ownership is transferred to the buyer immediately, though he has to make payment in many years. If the buyer is unable to make payment of any installment, vendor cannot take back the goods, he can only file suit for recovery of amount."

8. Installment Purchase is a type of financing where the buyer pays for an item in installments and owns it from the beginning. The buyer can use the item while making payments. This method is commonly used for purchasing electronics, appliances, and other smaller items . The interest rates are typically lower than Hire Purchase. Meaning Installment Purchase System

9. The features of Installment payment system are as follows: Under this system, there will be an outright sale of goods/assets The possession as well as the ownership is passed on to the buyer right at the time of signing the contract. The buyer can make the payment in installments. In case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price. The buyer cannot exercise the option of returning the goods and terminate the contract, unless the same becomes void or voidable under the contract act. Features of Installment Purchase System

10. Important Terms and Provisions under Hire Purchase Hire purchaser: Hire purchaser is a person who obtains the possession of goods for use with an option to either purchase it or return after use. Hire vendor: Hire vendor is a person who owns the goods, and who parts with the possession of these goods to the buyer with an option of 'Purchase or hire. Cash price: It refers to the price at which goods are sold under 'Contract of Sale(It is the price at which the purchaser can purchase the goods by paying full cash at the time of purchase.) Hire Purchase price: It refers to the price at which the goods are sold under 'Hire Purchase System .It includes cash price of the goods and interest. Hire purchase price = Cash price + Interest on the outstanding balance Installment money: It refers to a part of Hire purchase price paid by hire purchaser, in period intervals.

11. Deposit: It means any sum payable by the hirer (i.e. hire purchaser) under the hire purchase agreement by way of deposit or other initial payment or credited or to be credited to him and the agreement on account of any such deposit or payment, whether that sum is to be or has be discharged by payment of money or by transfer or delivery of goods or by any other means , In normal term, it is also called ' down payment i.e . “payment made by hire purchaser to his vendor at the time of taking delivery of goods or at the time of signing hire purchase agreement .”

12. Net Cash price: It refers to the difference between cash price of the goods and the deposit of the down payment). It is the amount on which, interest is calculated under hire purchase system. (Net CP = CP – Down payment.) Net Hire Purchase price: It refers to the hire purchase price of the goods less ( Net HP Price = HP Price – (Delivery charges + Registration charges + Insurance charges) (a) Delivery charges, if any (included in the price); (b) Registration charges, if any (included in the price); and (c) Insurance charges, if any (included in the price).

13. Hire Purchase charges: It refers to the difference between net hire purchase price and net price of the goods. It is also referred to as interest. (HP Charges = Net HP price – Cash price)

14. TERMINATION OF HIRE PURCHASE AGREEMENT The Hirer( hire purchaser ) can terminate the agreement at any time giving 14 days notice to the owner. However the agreement may impose severe liability, payment of additional charges if the hirer wants to terminate it However he need not pay this additional charges if he has already paid more than half of the amounts due by him before termination of agreement. On termination the hirer has to deliver the goods to the owner The owner will have the right to retain the hire (amount already received)and to recover the arrears of hire due

15. Rights of Hire Vendor He has the right to charge Hire charges (or interest) on the Hire Purchaser for the goods He has the right to repossess the goods on non-payment of any installment money by the hire purchaser

16. Rights of Hire Purchaser The hire purchaser can return the goods if he exercises the option and does not want to complete the transaction The hire vendor cannot terminate the hire purchase agreement due to the failure on the part of the hire purchaser to pay hire or due to an unauthorized act or breach of express conditions, without notice to the hire purchaser to that effect. A week’s notice is necessary where the hire is payable weekly or less than that and two weeks notice in other cases

17. The Hire vendor’s right of repossession will not exist in the following cases, unless the same is sanctioned by the court Where the hire purchase price is less than Rs 15000 and half of the hire purchase price is paid Where the hire purchase price is higher, three-fourths of the same has been paid However the right as applicable to motor vehicle is : where the hire purchase price is less than RS 5000 and half of it has been paid: and where the hire purchase price is more than Rs 5000, three fourths of the same has been paid Rights of Hire Purchaser

18. REBATE- The hirer can claim rebate from the owner or hire vendor in case he decided to remit the balance of the purchase price in lumpsum without continuing the hire purchase agreement till the last date stipulated However for such a change in terms of agreement he has to give 14 days notice to the owner of his intention of tendering the remaining balance in one lot The rabate in such a case is calculated as follows REBATE= 2/3 x Hire Charges x ( No of installments due ) Total no of installments Rights of Hire Purchaser

19. Calculation of interest when Rate of interest, total cash price and Installments are given Calculation of interest when rate of interest is not given Calculation when Installment does not include interest Calculation when cash price is not given When only each installment amount is given, but the cash price and the rate of interest are not given Calculation of interest when the installments are paid half yearly CALCULATION OF INTEREST

20. When Rate of interest, total cash price and Installments are given When hire purchase price is “inclusive of interest” When hire purchase price is “Exclusive of interest” Under this method, the cash price, installments and the rate of interest are given. Interest is calculated on the cash price outstanding after the payment of the installment. There are two alternatives available to calculate the interest included in each installment - A table is prepared showing the calculations To present the calculations in the form of a statement.