Advantages of Hire Purchase System:

Advantages of Hire Purchase System:
(1) Convenience in Payment:
The buyer is greatly benefited as he has to make the payment in installments. This system is greatly advantageous to the people having limited income.
(2) Increased Volume Of Sales:
This system attracts more customers as the payment is to be made in easy installments. This leads to increased volume of sales.
(3) Increased Profits:
Large volume of sales ensures increased profits to the seller.
(4) Encourages Savings:
It encourages thrift among the buyers who are forced to save some portion of their income for the payment of the installments. This inculcates the habit to save among the people.
(5) Helpful For Small Traders:
This system is a blessing for the small manufacturers and traders. They can purchase machinery and other equipment on installment basis and in turn sell to the buyer charging full price.
(6) Earning Of Interest:
The seller gets the installment which includes original price and interest. The interest is calculated in advance and added in total installments to be paid by the buyer.
(7) Lesser Risk:
From the point of view of seller this system is greatly beneficial as he knows that if the buyer fails to pay one installment, he can get the article back.
Disadvantages of Hire Purchase System:
(1) Higher Price:
A buyer has to pay higher price for the article purchased which includes cost plus interest. The rate of interest is quite high.
(2) Artificial Demand:
Hire purchase system creates artificial demand for the product. The buyer is tempted to purchase the products, even if he does not need or afford to buy the product.
(3) Heavy Risk:
The seller runs a heavy risk under such system, though he has the right to take back the articles from the defaulting customers. The second hand goods fetch little price.
(4) Difficulties in Recovery of Installments:
It has been observed that the sellers do not get the installments from the purchasers on time. They may choose wrong buyers which may put them in trouble. They have to waste time and incur extra expenditure for the recovery of the installments. This sometimes led to serious conflicts between the buyers and the sellers.
(5) Break Up Of Families:
The system puts a great financial burden on the families which cannot afford to buy costly and luxurious items. Recent studies in western countries have revealed that thousands of happy homes and families have been broken by hire purchase buying’s.