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Difference Between Sale and Hire Purchase

July 23, 2011 Posted by Olivia

Sale vs Hire Purchase

Most of us are aware of sale agreement only, which is another name of invoice that we get when we make a payment for an item through cash or credit card. However, there is also a system of purchase that allows a buyer to pay in installments and yet get ownership rights of the item when he makes payment of the last stipulated installment. This is called hire purchase, and is a popular sale agreement in some parts of the world. This is a contract between a vendor and a buyer that has the provisions clearly spelt out while allowing the buyer to enjoy the usage of the product. There are many more differences between an outright sale and hire purchase that shall be discussed in this article.

Hire purchase is a contract between a vendor and a buyer where the buyer agrees to pay the price of an item in part (which may be a fixed percentage of the total price). These installments are decided on the basis of the full price plus interest divided by the duration of the contract thus, arriving upon the installment. This is usually done to make buying a product that is expensive look attractive to people. Though it looks similar to a mortgage or buying in installments like a car loan, hire purchase is different in the sense that the buyer does not get ownership rights of the product until he pays the final installment. On the other hand, buying on installments makes one a legal owner of a product. Businessmen find this proposition attractive as they do not have to show the item thus purchased in their books until they have paid the final installment. Ownership is one major point of difference in a sale and a hire purchase.

since you have bought a product, you cannot terminate the contract, while there is a provision whereby, a buyer in hire purchase can disregard the contract and refuse to pay further installments, returning the product to the vendor. So in a sale, whether you are buying a cheap or an expensive item, you make the payment at the time of sale, whereas you can stop paying installments in hire purchase.

If you have paid and bought a car, you can resell it whenever you so desire, but if you have got the car under hire purchase, you are not a legal owner of the car until you have paid the final installment. In hire purchase, the vendor has the right to get back the product, if the buyer is a defaulter, so there is no loss to the seller. Though hire purchase is a good system, its need is somewhat reduced, what with credit being readily available for all sorts of product from banks these days.

In brief:

• In sale, you pay up front or as per provisions of the contract, whereas in hire purchase, the hirer pays in installments

• Buyer gets ownership rights as soon as he makes the payment of goods in sale, whereas ownership is transferred to the hirer only after he has paid the final installment

• Hirer can return the product and stop paying further installments if he is not satisfied with the product. This is not possible in sale.

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Difference Between Finance Lease and Hire Purchase Difference Between MSRP and Invoice Difference Between Hire and Lease Difference Between Manufacturers Guarantee and Warranty Difference Between Finance Lease and Operating Lease

Filed Under: Investment, Sales Tagged With: buying on installment, defaulter, Hire Purchase, invoice, ownership, sale agreement

About the Author: Olivia

Olivia is a Graduate in Electronic Engineering with HR, Training & Development background and has over 15 years of field experience.

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