Difference between Hire Purchase and Installment System
Hire Purchase & Installment System:-
Under this system, assets or goods are taken on hire purchase, the purchaser (hire purchaser) gets possession of goods or assets immediately after paying down payment. However, the ownership remains with the Seller (hire vendor) until the buyer pays the full amount.
Installment System:- here, the possession as well as ownership is transferred to the buyer immediately.
Terminology used in Hire Purchase System:-
- Cash Price-amount pay at the time of purchase by purchaser directly when purchase in cash.
- Hire vendor-who sell the goods to the hire purchaser.
- Hire Purchaser-who purchase the goods under hire purchase agreement from hire vendor.
- Hire Purchase Installment:-amount pay at the regular interval up to period predefined in agreement.
- Down Payment-initial payment made to hire vendor by hire purchaser.
- Hire Purchase Price-total amount of asset payable by hire purchaser.
| Basis | Hire Purchase | Installment system |
|---|---|---|
| Nature | It is an agreement for hire. | It is an agreement of sale. |
| Parties | Hire Purchaser and Hire Vendor. | Buyer and Seller. |
| Ownership | Ownership of the goods is transferred at the time of last installment. | ownership of the goods is transferred at the time of sale. |
| Right to return | The hire purchaser may return the goods. | goods are not returnable. |
| Right of seller | If the buyer is in default, seller may take possession of goods. | If the buyer is in default, seller can sue for price. |
| Risk of loss | The hire purchaser does not bear the risk of loss of goods. | The buyer bears the risk of loss of goods. |
| Terminology | Hire charges is included in installment.. | Interest is included in installment. |