Difference between Hire Purchase and Installment System

Both hire purchase and installment sales are popular methods of financing goods. There are 3 parties in Hire Purchase trade namely the seller, the financier, and the buyer. There are only 2 parties involved in Installment sale namely the seller and buyer. The main dissimilarities or difference between hire purchase system and the installment system can be pointed out as follows.

Difference between Hire Purchase and Installment System –

(1) Nature of Contract

  • Hire Purchase System: It is a hiring goods agreement. System of buying goods by making regular payments until the full price is paid.
  • Installment System: It is an agreement of sale. System of credit sale in which a sum of money or debt is paid regularly in installment.

(2) Ownership

  • Hire Purchase System: Ownership of goods is transferred after the payment of the final installment. Ownership of goods remains with the seller until the full price is paid
  • Installment System: Ownership of the goods passes to the buyer just signing the agreement. Ownership is transferred immediately after the first installment

(3) Right

  • Hire Purchase System: The buyer can not sell, destroy or transfer the goods.
  • Installment System: The buyer can sell, destroy or mortgage or transfer as his/her wish.

(4) Risk

  • Hire Purchase System: All the risks are borne by the vendor before the payment of the final installment.
  • Installment System: All the risks are to be borne by the buyer from the date of the agreement.

(5) Right of Return

  • Hire Purchase System: The buyer can return the goods before making the final installment. Goods can be returned to the seller before the final installment.
  • Installment System: The buyer can not return the goods to the seller.

(6) Repair and Maintenance

  • Hire Purchase System: The liability of repair and maintenance lies with the seller-provided that the buyer takes the utmost good care.
  • Installment System: The buyer is responsible for repair and maintenance. Goods cannot be returned.

(7) Forfeiture of Installment Paid

  • Hire Purchase System: In case of default in payment of installment, paid installment will be forfeited and treated as hire charges.
  • Installment System: The act of forfeiture can not be activated.

Conclusion

In essence, the hire purchase system is suitable for buyers who need the asset for a short period or are not sure of long term needs.

 

Information Source: