Hire Purchase

It is also called closed-end leasing / Installment Plan / Rent to own. In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price usually a nominal sum or return the goods to the owner

If the buyer defaults in paying the installments, the owner may repossess the goods, a vendor protection not available with unsecured-consumer-credit systems. Hire purchase is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different balance sheet and taxation treatment of hire-purchased goods beneficial to their taxable income. The need for Hire purchase is reduced when consumers have collateral or other forms of credit readily available.

Agreement must clearly lay out the rules and regulations for better understanding as below

• Clear description of the goods
• Cash price for the goods
• Hire purchase price, i.e., the total sum that must be paid to hire and then purchase the goods
• Deposits ( if any )
• Monthly installments (Principle + Interest break up Hire purchase transactions)
• Comprehensive statement of the parties’ rights (for any PUT or CALL options during a “cooling-off” period).
• The right of the hire to terminate the contract when he feels like doing so with a valid reason.
• Hire purchase agreements must be in writing and signed by both the parties.