Hire purchase and installment purchase system

Concept Of Hire Purchase System

Purchase and sale of goods under a hire purchase system is different from cash sale and credit sale. In case of cash sale, the buyer pays the lump sum to the seller and immediately ownership is passed along with the goods. While in credit sale the payment is made in future. In these both cases the ownership and possession of goods pass on the buyer. However, hire purchase system is a special system of purchase and sale.

In hire purchase system, the buyer acquires the property by promising to pay necessary installment payment of monthly, quarterly, half yearly or any other period. The period of payment has to be fixed while, signing the hire sell agreement. Though, the buyer acquires the asset under hire purchase system after signing the agreement, the title of ownership remains with vendor until the buyer squares up his/her entire liability. When the buyer pays the final installment and any other obligation according to hire purchase agreement, only then the title of ownership of the goods would be transferred to hirer. If the hirer makes deault in the payment of any installment, the hire vendor has the right to re-possess the goods. When the vendor re-possesses the goods due to the default of payment of installment, in this case the amount already paid so far by the hirer will be forfeited.

The hire purchase price of goods is normally higher than the cash down price of article because it includes interest as well as cash price. Under hire purchase system, the vendor is responsible to repair the goods which are in the possession of buyer provided that the buyer takes the utmost proper care of the goods acquired. The risk is also borne by the vendor until the payment of last installment. The buyer has the right to return the goods to the vendor, if they are not according to the terms and condition of hire purchase agreement.

Concept Of Installment System

An installment system is just like a credit purchase and hire purchase system of selling and buying goods. Like hire purchase, in installment system an agreement is made between buyer and seller to purchase and sell of goods. The buyer makes certain down payment at the time of signing agreement and the balance is paying in installment over a period of time.
An installment system is a credit sale in which payments are made in installments over a period of time. In this system, the buyer gets the possession as well as ownership of the goods right at the time of signing the agreement. During the course of paying the installment, if the buyer makes default in paying the installment, the vendor cannot responses the goods. In that case, the vendor can sue the buyer for recovery of dues. Like in hire purchase even the paid installments also can not be forfeited in case of default in paying installment.
Thus, it can be said that installment system is a kind of credit sale where installments are entertained over the period and default in such payment cannot responses the goods and in that case, the vendor can only sue the buyer for the recovery of amount due.

Features Of Installment Purchase System

1. Installment purchase system is just like an outright credit sale of goods.
2. The buyer makes the payment in different installment over a period of time as agrees upon in the agreement.
3. Under installment purchase system, the buyer gets the immediate possession as well as the ownership of goods.
4. 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 amount due.
5. In case of default in the payment of installment, the total amount of installments already paid by the buyer cannot be forfeited.
6. Under installment system, the buyer can sell or mortgage the goods even before clearing all the installments.
7. Risk of goods/assets are to be borne by the buyer just after signing the agreement.
8. The buyer of the goods under installment purchase system has no right to return the goods to the seller.

Difference

1. Nature Of Contract
   Hire Purchase System: It is a hiring goods agreement.
   Installment System: It is an agreement of sale.

   2. Ownership
   Hire Purchase System: Ownership of goods is transferred after the payment of final installment.
   Installment System: Ownership of the goods passes to the buyer just signing the agreement.

   3. Right
   Hire Purchase System: The buyer can not sell, destroy or transfer the goods.
   Installment System: The buyer can sell, destroy or mortgage or transfer as his/her wish.

   4. Risk
   Hire Purchase System: All the risks are borne by the vendor before the payment of final installment.
   Installment System: All the risks are to be borne by the buyer from the date of agreement.

   5. Right Of Return
   Hire Purchase System: The buyer can return the goods before making the final installment.
   Installment System: The buyer can not return the goods to the seller.

   6. Repair And Maintenance
   Hire Purchase System: The liability of repair and maintenance lies with the seller provided that the buyer takes the utmost good care.
   Installment System: The buyer is responsible for repair and maintenance.

   7. Forfeiture Of Installment Paid
   Hire Purchase System: In case of default in payment of installment, paid installment will be forfeited and treated as hire charges.
   Installment System: The act of forfeiture can not be activated.