Hire Purchase Agreement

5. Hire Purchase Agreement

The customer can hire goods and can buy them at the end of the hire period. Consumer durable goods like freezers etc. are sold in this way. The goods remain the property of the seller till the last payment is made.

Features of Hire purchase

·         The hire purchase agreement is an agreement to hire with an option to purchase.

·         Ownership lies in the hands of the seller till the buyer pays the full amount.

·         If the buyer fails to pay the installment, the goods will be repossessed by the seller.

·         Hire purchase is suitable for capital goods

Advantages of hire purchase to the buyer

1.    It enables the poor people to obtain goods.

2.    Goods can be bought immediately and the payments can be made in installment.

3.    Good quality goods can be bought when they are needed the most.

Advantages of hire purchase to the seller

1.    It helps to increase the sales.

2.    If the payment is not made the seller can take back the goods by low.

Disadvantages of hire purchase to the buyer

1.    Goods once bought cannot be sold until the last installment has been paid up.

2.    Goods can be bought only from those sellers who offer hire purchase credit.

3.    The prices of the goods are high.

4.    Hire purchase restricts the purchase of goods to only those that are large and have a resale value.

5.    Hire purchase system motivates the people to buy unnecessary luxury items.

Disadvantages of hire purchase to the seller

1.    Risk of bad debts.

2.    Goods repossessed may not be in a good condition and may have little resale value.

3.    Hire purchase buying increases the capital required by the seller to run the business.

4.    More administrative expenses insure to record and keep track of installment due.