INTRODUCTION
- With an increasing demand for better life, the consumption of goods has been on the expanding scale. But, this has not been backed up by adequate purchasing power, transforming it into effectual demand, i.e., actual sale at set or settled prices.
- This has created the market for what is called hire purchase.
- When a person wants to acquire an asset, but is not sure how to make payment within a stipulated period of time he may pay in instalments if the vendor agrees.
- This enables the purchaser to use the asset while paying for it in instalments over an agreed period of time. This type of a business deal is known as hire purchase transaction.
- Here, the customer pays the entire amount either in monthly or quarterly or yearly instalments, while the asset remains the property of the seller until the buyer squares up his entire liability. For the seller, the agreed instalments include his interest on the assets given on credit to the purchaser.
- Therefore, when the total amount (being paid in instalments over a period of time) is certainly higher than the cash down price of the asset because of interest charges. Obviously, both the parties gain in the bargain.
- By virtue of this, the purchaser has the right of immediate use of the asset without making immediate payment for the asset, by this, he gets both credit and product from the same seller. From seller’s view point, he derives the benefits by way of increase in sales and also he recovers his own cost of credit.
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