Hire-Purchase System

It is defined as: “A system whereby the owner of the goods lets them on hire for periodic payments by the hirer upon an agreement that when a certain number of payments have been completed, the absolute property in the goods will pass to the hirer, but so that the hire may return the goods at any time without any obligation to pay any balance of rent accruing after return; until the conditions have been fulfilled the property remains in the owner”. In a hire purchase transaction, therefore, certain goods are delivered by the owner/seller (called the hire vendor) to a person called the hire purchaser (or simply hirer) which a condition that the hire purchaser will pay the agreed price of the goods which is inclusive of certain amount of interest by different specified/fixed installments on specified/ fixed dates over a certain period of time. The hire purchaser acquires the property (goods) immediately on signing the hire purchase agreement but the ownership or title of the same is transferred only when the last installment is paid. Thus the main features of the hire purchase system is that though the possession of the property (goods) is taken immediately by the hire purchaser; the ownership still remains with the hire vendor (owner) until the last installment is paid. The goods can be taken back even when sold to third party by the hire purchaser. It is also relevant to state that he sums paid by the hire purchaser, prior to the repossession of goods by the hire vendor, are treated as hire charges for using the property and the same are never refundable if the hire purchaser does not want to continue the hire purchase agreement. Hire purchase agreement means 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:

(a)    possession of goods is delivered by the owner thereof to a person who pays the agreed amount in periodical installments;

(b)    the property in goods is to pass to such person on the payment of such last installment; and

(c)    such personal has a right to terminate the agreement at any time before the property so passes.

Hirer means the person who obtains or has obtained possession of goods from an owner under a hire purchase agreement and includes a person to whom the hirer’s rights or liabilities under the agreement have passed by assignment or by operation of law.

Owners means a person who lets or has let, delivers or has delivered possession of goods, to a hirer under  a hire purchase agreement and includes a person to whom the owner’s property in the goods or any of owner’s right or liabilities under the agreement has passed by assignment or by operation of law.

Deposit means certain sum of money paid by hirer (hire purchaser) at the time of taking possession of the property (goods), also known as initial payment or down payment or opting amount.

Hire means the sum payable periodically by the hirer under a hire purchase agreement.
Cash Price means the total amount as price payable at the time of purchase. It is composed of cost to the owner plus profit margin.

Net Cash Price means the cash price of the goods comprised in the hire purchase agreement less any deposit.

Cash Price Installment means an amount which bears to the net cash price the same proportions as the amount of hire purchase installment bears to the total amount of hire purchase price viz.

Cash Price Installment = Net Cash Price x Hire Purchase Installment
                             _______________________Hire Purchase Price

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