Hire Purchase System vs Installment Payment System

Hire Purchase System:

Under the Hire Purchase System the customer (Hire Purchaser) obtains possession of the goods at the outset and can use it, while paying for it by installments over an agreed period of time.

However, the ownership of the goods remains with The seller (Hire Vendor) until the hire purchaser has made all the payments. Each installment paid by the hire purchaser is considered as hire charging for using the asset.

If he (hire purchaser) fails to pay any of the installments (even the last one) the hire vendor will take back his goods without compensating the buyer i.e., the hire vendor is not going to pay back a part or whole of the amount received through installments from the buyer.

Installment Payment System:

It is a system of credit sale in which payments are made in installment over a period of time,under this system buyer gets the possession and also ownership of the goods right at the time of signing the agreement. If the buyer defaults, the seller cannot repossesses the goods but he can sue the buyer for the amount due.

Difference Between Hire Purchase System and Installment Payment System:

Hire Purchase System

  1. Nature of Contract: It is an agreement of hiring
  2. Passing of Title (ownership): The title of the goods is passed on to the buyer after the payment of the final installment.
  3. Right of Seller: If the buyer fails to pay any of installment, the goods can be repossessed by the seller.
  4. Right of Disposal: The buyer cannot hire out, sell, transfer, destroy, pledge the goods.
  5. Return of Goods: The buyer may return the goods without further, payment, except for accrued installment.
  6. Forfeiture of Amount Received: In case of default, the total amount of installment paid is forfeited and considered as hire charges.

Installment Payment System

  1. Nature of Contract: It is an agreement of sale.
  2. Passing of Title (ownership): The title of goods passes immediately (i.e., at the time of signing the agreement) as in the case of usual sale.
  3. Right of Seller: The seller cannot repossess the goods. He can sue the buyer for the amount due.
  4. Right of Disposal: The buyer can hire out, sell, transfer, destroy, pledge the goods and the bona fide purchaser can get good title.
  5. Return of Goods: Except seller’s default goods cannot be returned.
  6. Forfeiture of Amount Received: In case of default, the total amount of installment paid by the buyer cannot be forfeited.

Tags: B.Com

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