LEGAL ASPECTS OF BUSINESS

HIRE PURCHASE AND INSTALLMENT SYSTEM

Section-A, Group-10

Ayush Ranjan (M011-18)

Geolangsat Narzary (M019-18)

Kusumanth Boddu (M027-18)

Pratiksha Bajoria (M033-18)

Mamta (M028-18)

Sudipta Sen (M046-18)

Y. Akshay Bharadwaj (M054-18)

(M054 Rahul
Kumar (M038-17)

Section A, Group -10

 CONTENTS

1. Executive Summary
2. Hire Purchase System
3. Features Of Hire Purchase System
4. Contents Of Hire Purchase Agreement
5. Hire Vendor Definition
6. Cash Price Meaning Of Deposit
7. Meaning Of Re-Possession
8. Termination Of Hire Purchase Agreement
9. Rights Of Hire Purchaser
10. Meaning Of Rebate
11. How Does A Hire Purchase Agreement Work?
12. Typical Fees And Costs On A Hire Purchase Agreement
13. What Happens If The Goods Are Faulty Or Damaged?
14. Sale Vs. Hire Purchase
15. Advantages Of Hire Purchase Agreements
16. Disadvantages Of Hire Purchase Agreements
17. Example Of An Hire Purchase Transaction
18. Installment Purchase
19. Time Of Purchase And Ownership
20. Installment
21. Risk, Repair And Maintenance Related To Asset
22. Right To Sell Or Transfer
23. The Default Of Installment
24. Example Of Installment Sales Method
25. Conclusion
26. References

Section A, Group -10

 EXECUTIVE SUMMARY

Under hire purchase system, the seller agrees to sell the article on the condition that the buyer shall pay the purchase price
through installments. The article is not legally sold to the buyer in hire purchase system.

The buyer/hirer makes an initial payment called ‘down payment‘and the balance amount due to the vendor (seller) in
installments together with interest. Ownership in the goods is transferred from seller to the buyer only on the payment of
last installment. So, if the buyer defaults to pay the installment amount, the goods will be repossessed by the seller.

The Installment system is almost similar to the hire purchase system. The main difference between the two is that in
installment system, the buyer gets the ownership rights as soon as the contract is signed with the seller. If he makes any
default in payment of any installment, the seller can repossess the article only with the help of the Court.

Hire purchase and installment systems facilitate brisk sale of consumer durable. Commodities like two wheeler, television
sets, radios, refrigerators, cycle, furniture etc., are sold in large volumes under hire purchase and installment system.

The products to be sold under these systems should be

  durable,

  high in quality,
  fashionable
  standardized; and
 high priced.

HIRE PURCHASE SYSTEM

Hire purchase system refers to the system wherein, the seller of goods delivers the goods to the buyer without transferring
the ownership of goods. The payment for the goods will be made by the buyer in instalments. If the buyer pays all the
instalments, the ownership of the goods will be transferred, on payment of the last instalment.
 The goods will be delivered to the purchaser at the time of agreement.

 The purchaser has a right to use the goods delivered. 

 The price of the goods will be paid in instalments.

FEATURES OF HIRE PURCHASE

1. Hire purchase is an agreement between two parties called Hire vendor and Hire purchase.
2. The hire purchaser becomes the owner of the asset after paying the last instalment.
3. The hire vendor has the right to repossess the asset in case of difficulties in obtaining the payment
of instalment.
4. Payment will be made in instalments.
RIGHTS OF HIRE PURCHASER

  To receive a copy of the hire purchase (HP) agreement.

  To obtain any information regarding the account.
  To settle early the full outstanding amount.
  To terminate the agreement at any time.

The hire purchase agreement states:

  The goods the agreement refers to, for example, a car or computer.
 The cash price of the goods

 The hire purchase price, which is the total sum payable over the life of the loan in order to complete the purchase
of the goods. The hire purchase price is therefore the monthly payment or installment multiplied by the number
of installments which have to be made.

 The amount of each instalment by which the hire purchase price is to be paid. Sometimes the last instalment
required to end the agreement is much larger than all the others. This is called a balloon payment and will have to
 be paid to clear the loan and allow the consumer to become the owner.
 TYPICAL FEES AND COSTS ON A HIRE PURCHASE AGREEMENT

The fees and charges on hire purchase agreements vary, but may include:

 Documentation fees

 Interest surcharge for missed repayments - this means an additional amount of interest will be charged on the
 amount unpaid
 Penalty fees for missed or late payments

EXAMPLE OF AN HIRE PURCHASE TRANSACTION

When a vehicle is purchased on hire purchase, the finance company will have the vehicle hypothecated in its favour and
this will be mentioned in the R.C book (Registration Certificate book) of the vehicle and also in the insurance policy. On
completion of the installment amount, the purchaser will get a certificate from the finance company regarding the
completion of payment. The RTO (Regional Transport Office of the government) authorities will cancel the hypothecation in
the R.C book and will also mention that the hypothecation is cancelled with effect from a particular date. This will be duly
informed to insurance company, which in turn will cancel the hypothecation by making an endorsement in the insurance
policy. Thus, the ownership gets completely transferred in the name of the purchaser / hirer.

INSTALLMENT PURCHASE

Installment purchase is defined as another method of financing the capital goods / assets whereby the goods are purchased
by the buyer but the payment is made in smaller installments.
In case of installment, the purchase happens as soon as the agreement between the buyer and the financing party is
entered into.

TIME OF PURCHASE AND OWNERSHIP

In installment method, both the purchase and ownership take place before the complete payment.
There is no such option available to the buyer in case of installment purchase as the purchase has happened at the
beginning itself.

INSTALLMENT

The monthly or period payment in installment purchase is termed as installment. Installment derives its value from the
length of time, the sale value of an asset, and interest rate. Ideally, the installment should be less than the hire charges for
the same asset.
RISK, REPAIR AND MAINTENANCE RELATED TO ASSET

Risk is the borne by the buyer from day one. Also, repair and maintenance cost is also by the buyer.

RIGHT TO SELL OR TRANSFER

The right to sell or transfer is always exercised by the owner of the assets. In the case of installment purchase, it is with the
buyer because he becomes the owner on the day he signs the agreement.

THE DEFAULT OF INSTALLMENT

Whereas in installment purchase, the installment paid are not forfeited and the financier is liable to receive the remaining
dues.
 EXAMPLE OF INSTALLMENT SALES METHOD

Company A is a furniture company and makes a sale for a piece of furniture with a retail price of $10,000 at the end of
January. The cost of the furniture to the company is $4,000. Therefore, the gross margin for this good is 60%.

The company strikes a deal with the customer in which the customer is required to make installment payments of $2,500
each month for the furniture until the principal amount is paid ($10,000).

REFERENCES

1. https://accountlearning.blogspot.com/2011/10/difference-between-hire-purchase-and.html
2. https://efinancemanagement.com/sources-of-finance/difference-between-hire-purchase-vs-installment-
purchase
3. https://www.citizensinformation.ie/en/money_and_tax/personal_finance/loans_and _credit/hire_purchase.html
4. https://accountlearning.com/hire-purchase-agreement-elements-parties-involved-example/
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