Hire Purchse

HIRE PURCHASE         
                                                     

         



 Hire purchase is a method of selling goods .In a hire purchase transaction the goods are let out on hire by a financial company to the hire purchase customer .The buyer is required to pay an agreed amount in periodical installments during a given period .The ownership of the property remains with creditor and passes on to hire on payment of last installment

The hire purchase is a pure business transaction where goods are sold for credit .In which the buyer take hold of the goods right away and agree to make pay the hire purchase price in a installment (Each installment is treated as hire charges) .In case the buyer makes any default in the payment of any installment the seller has the right to repossess the goods from the buyer and forfeit the amount already received treating it as hire charge

The buyer loose it first installment amount as it's hire charge

The seller, Financial company are( creditors)

The purchase customer ( hirer )

History of hire purchase

                   
                    The growth of the hire purchase system can be trace back to the stage of industry development in the U.K. The industry era bring all kind of computation which the company look for new way of selling good at secured way without loosing money .A agreement which benefit the company because in hire purchase the company has the right to take back the good without loosing the money threatening it as hire purchase charge ( the installment amount paid by the buyer )

COWPERWAIT&SONS, a furniture dealer introduced the hire purchase system in U.S.A. in 1807

The idea was started by wagon company which were formed to finance the purchase of the wagons by collieries .The wagons company bought the wagons and then let them out collieries under hire purchase agreement

HIRE PURCHASE AND INSTALLMENT SALES

The Hire purchase transaction is different from installment system .In case of installment system it is not only to possess the goods but also the owner of the goods which is transfers to buyer immediately at the time of the agreement when the buyer stop the payment of goods the seller has repossess through legal notice and sue him for default payment

In the case of the hire purchase the buyer only can hold the goods he become full owner only when he make full payment of the goods through installment until then the seller is the true owner of the goods and can repossess the good in the middle of agreement and in the case of default

Hire purchase vs leasing

• Ownership : In the hire purchase the owner ship remain with the seller (creditor)

                                    In the case of leasing the ownership transfer to the buyer ( debtor )

• Financing method : In the hire purchase the financing for assets and consumer atrial

                                                  In the leasing the finance is for machine and assets

• Depreciation : In the hire purchase the depreciation amount can be claim by the hirer

                                         In the leasing the depreciation amount is claim on the bases of leasing

operating leasing the short term leasingfinancial leasing long term leasing

• Deposit : In the hire purchase there need of 20% deposit is required

                             In the leasing there is no need for deposit

• Maintenance : In hire purchase the maintenance is cost in not the burden of the hirer

                                        In leasing the maintenance charge transfer to the lessee along with the asset

Bank credit for hire purchase

The subsidiary of the commercial bank lend to the dealer or to finance intermediary who has already financial articles sold by the dealer to the hirer under the hire purchase contract .While considering proposal from dealer or hire purchase financing companies the bank subsidiary has to take extra precaution looking to the particular nature of transaction under hire purchase contract

                            When offered this type of business the bank subsidiary would make an assessment of the standing and financial position of the dealer or of the hire purchase company and take into consideration the principal of goods lending and carry out the procedure below

(1) customer :

                            when approached for the hire purchase facility the subsidiary should take care to make the assessment of the standing and financing position of the business customer 

(2) Purpose :

                          the type of goods being use in the hire purchase translation is great importance in the event of default the bank may reconsider repossessing the goods and selling them to clear the advance

                 The goods can be really sold elsewhere than the agreement are better security than those for which will have a lower resale value

(3) Amount :

                          bank subsidiaries taking up hire purchase business would do well to discourage small individual loans In order to ensure proper service and monitoring it's also essential to have floor limit in the amount of the individual hire purchase transaction

(4) Period :

                      the facility normally be extended over to three year

(5) Repayment :

                                repayment are spread evenly or agreed over the loan period the repayment should be adaptable to the hirer's needs the repayment can usually be tailor made to suit the income generation from the use of the asset so that it is self-financing

(6) Security :

                          technically hire purchase advance is against hypothecation of equipment /vehicles and pledge of hundis /pronotes and lodgements of hire purchase agreement the bank subsidiary will ask the borrower to complete the bank from of security to charge the security under an equitable/hypothecation charge

                            If necessary the bank subsidiary will ask the hirer to furnish a guarantor of means and the bank would in such a case insist that the guarantor should also accept the hundies

(7) Monitoring and control :

                                                        The bank needs to exercise control over the ongoing situation A periodical certificate should be obtained from the finance company at the monthly intervals stating the total amount of outstanding but excluding those hire purchase agreement which have become in arrears and are therefore suspects one or two months in arrears may be acceptable but more than that suggest that the particular hirer is in permanent default The bank will keep a running total of these amount returning agreement which have become lapsed to their customer