Hire purchase is a mode of financing the price of the goods to be sold on a future date. In a hire purchase transaction, the goods are let on hire, the purchase price is to be paid in installments and hirer is allowed an option to purchase the goods by paying all the installments. Hire purchase is a method of selling goods. In a hire purchase transaction the goods are let out on hire by a finance company (creditor) to the hire purchase customer (hirer). 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 hirer on the payment of the last installment.
A hire purchase agreement is defined in the Hire Purchase Act, 1972 as peculiar kind of transaction in which the goods are let on hire with an option to the hirer to purchase them, with the following stipulations:
1. Payments to be made in installments over a specified period.
2. The possession is delivered to the hirer at the time of entering into the contract.
3. The property in goods passes to the hirer on payment of the last installment.
4. Each installment is treated as hire charges so that if default is made in payment of any installment, the seller becomes entitled to take away the goods, and
5. The hirer/ purchase is free to return the goods without being required to pay any further installments falling due after the return.
Features of Hire Purchase Agreement:
1. Under hire purchase system, the buyer takes possession of goods immediately and agrees to pay the total hire purchase price in installments.
2. Each installment is treated as hire charges.
3. The ownership of the goods passes from the seller to the buyer on the payment of the last installment.
In case the buyer makes any default in the payment of any installment the seller has right to repossess the goods from the buyer and forfeit the amount already received treating it as hire charges.
The hirer has the right to terminate the agreement any time before the property passes. That is, he has the option to return the goods in which case he need not pay installments falling due thereafter. However, he cannot recover the sums already paid as such sums legally represent hire charges on the goods in question.