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Hire Purchase System, Lecture notes of Finance

It is a study of finance. it is basically a system in which bank provides loan at instalment basis. here the assets are given to the owner and the buyer pays the amount at EMI basis.

Typology: Lecture notes

2017/2018

Uploaded on 08/17/2018

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Hire Purchase Agreement
The hire purchase agreement must contain: -
Description of goods.
Price of goods.
The date of the agreement.
The number of instalments, amount and the due date of the agreement.
Hire Purchase Process
Seller sell the goods to the financial company.
The financial company let goods on hire to the buyer.
Buyer makes the down payment and takes the possession.
Then buyer makes all the agreed instalments.
The ownership is transferred from the financial co. to the buyer at the end
of the agreement.
Advantages of HP System
Immediate use of the assets without paying the entire amount.
Expensive assets can be utilized as the payment is spread over a period of
time.
Fixed rental payments make the budgeting easier as all the expenditures
are known in advance to the buyer.
Easy accessibility as it is a secured financing.
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Hire Purchase Agreement

The hire purchase agreement must contain: -

  • Description of goods.
  • Price of goods.
  • The date of the agreement.
  • The number of instalments, amount and the due date of the agreement.

Hire Purchase Process

  • Seller sell the goods to the financial company.
  • (^) The financial company let goods on hire to the buyer.
  • Buyer makes the down payment and takes the possession.
  • Then buyer makes all the agreed instalments.
  • The ownership is transferred from the financial co. to the buyer at the end of the agreement.

Advantages of HP System

  • Immediate use of the assets without paying the entire amount.
  • Expensive assets can be utilized as the payment is spread over a period of time.
  • Fixed rental payments make the budgeting easier as all the expenditures are known in advance to the buyer.
  • Easy accessibility as it is a secured financing.

Disadvantages of HP System

  • Total amount of asset paid at the end of the agreement will be higher compared to the actual price of the asset.
  • Ownership will be given only at the end of the agreement. The buyer cannot modify the asset till then.
  • The duration of the assets are instalments are generally short.
  • The addition or any change in the agreement may increase the cost.