Hire-Purchase & Installment Payment System

Hire-Purchase system

It is a special system of purchase and sale of goods. Under this system purchaser pays the price of the goods in installments. The installments may be annual, six monthly, quarterly, monthly fortnightly etc. Under this system the goods are delivered to the purchaser at the time of agreement before the payment of installments but the title on the goods is transferred after the payment of all installments as per the hire-purchase agreement. The special feature of a hire-purchase transaction is that the payment of every installment is treated as the payment of hire charges by the purchaser to the hire vendor till the payment of the last installment. After the payment of the last installment, the amount of various installments paid is appropriated towards the payment of the price of the goods sold and the ownership or the goods is transferred to the purchaser.

Installment Payment System

It is system of purchase and sale of goods in which title of goods is immediately transferred to the purchaser at the time of sale of goods and the sale price of the goods is paid in installments. In the event of default in payment of any installment, the seller has no right to take back goods from the possession of the purchaser. He can file a suit for the recovery of the outstanding balance of the price of goods sold. The followings are the differences between Hire-purchase system and Installment payment system:

Difference between Hire-Purchase and Installment System

Ownership

In Hire-purchase system, the transfer of ownership takes place after the payment of all installments while in case of Installment payment system, the ownership is transferred immediately at the time of agreement.

Type of Contract / Agreement

In Hire-purchase system, the hire-purchase agreement is like a contract of hire though later on it may become a purchase after the payment of last installment while in Installment payment system, the agreement is like a contract of credit purchase.

Possession / Rights of Parties

In case of default in payment, in Hire-purchase system the vendor has a right to back goods from the possession of the hire-purchaser while in case of Installment payment system, the vendor has no right to take back the goods from the possession of the purchaser; he can simply sue for the balance due.

Sales of Goods / Property

In Hire-purchase system, if the purchaser sells the goods to a third party before the payment of last installment, the third party does not get a better title on the goods purchased. But in case of Installment payment system, the third party gets a better title on the goods purchased.

Applicable Act

In Hire-purchase system the provisions of the Hire-purchase Act apply to the transaction while in case of Installment payment system, the provisions of Sale of Goods Act apply to the transaction.