What is Hire Purchase?
Hire Purchase (HP) is a method of purchasing goods where the buyer takes possession of the items after paying an initial installment (deposit) and becomes the owner once all subsequent agreed installments are paid. This financial arrangement allows consumers to use goods while gradually paying off the cost over time.
Unlike credit-sale agreements or sales by installments, where ownership transfers immediately upon signing the contract, hire purchase transfers ownership only after the final payment is made. Additionally, it differs from contracts of hire where ownership never passes to the hirer.
Under the Consumer Credit Act 1974, a hire-purchase agreement is defined as an arrangement where goods are bailed in return for periodic payments by the bailor (purchaser). Ownership transfers to the bailor upon compliance with the agreement terms and the exercise of the purchase option.
Examples of Hire Purchase
- Vehicle Purchase: Commonly used in acquiring automobiles, where the buyer drives the car after making a down payment, with monthly installments paid until the total cost is covered.
- Home Appliances: Consumers can obtain household goods like refrigerators or washing machines through hire purchase by making an initial deposit and continuing with monthly payments.
- Office Equipment: Businesses can acquire essential office equipment by entering into hire purchase agreements, spreading the cost over several years.
Frequently Asked Questions (FAQs)
What is the difference between hire purchase and a credit-sale agreement?
Hire Purchase: The ownership of goods transfers to the purchaser only after the entire payment is completed. Credit Sale Agreement: The ownership of the goods transfers immediately upon signing the contract, with the purchaser committing to pay in installments.
How is hire purchase regulated?
Hire purchase agreements were initially regulated by the Hire Purchase Act 1965, but most regulations have shifted under the Consumer Credit Act 1974. This Act governs the terms, conditions, and protections for consumers engaged in hire purchase agreements.
Can the hire-purchase agreement include a finance company?
Yes, often a third-party finance company is involved in hire purchase agreements. The finance company buys the goods upfront from the seller and enters into a hire-purchase agreement with the hirer for the installment payments.
What happens if a buyer defaults on payments?
If a buyer defaults, the seller or finance company has the right to repossess the goods since ownership has not yet passed to the purchaser.
Are there minimum deposit requirements for hire purchase agreements?
While government controls regulating minimum deposits were removed in 1982, individual agreements may still specify a required deposit based on the seller’s or finance company’s terms.
Related Terms
- Consumer Credit Act 1974: A comprehensive statute regulating consumer credit and hire-purchase agreements in the UK.
- Bailment: The process of transferring possession of goods under an agreement, while ownership remains with the bailor until specific conditions are met.
- Deferred Payment Agreement: Payment agreements where goods are bought upfront but paid for over time without affecting ownership transfer timing.
- Finance Company: An institution that purchases goods from a seller and enters into a hire-purchase agreement with the buyer to facilitate installment payments.
Online References
- Consumer Credit Act 1974
- Hire Purchase Agreement Introduction
- Regulations and Protections under Hire Purchase
Suggested Books for Further Studies
- “Consumer Credit Law and Practice: A Guide” by Dennis Rosenthal: A comprehensive guide on consumer credit laws including hire purchase regulations.
- “Hire Purchase: Law and Practice” by Philip James: A detailed examination of hire purchase agreements and their legal implications.
- “Consumer Lending: The Essential Guide” by John Taylor: Covers various forms of consumer credit, including hire purchase, and their impact on buyers.
Accounting Basics: “Hire Purchase” Fundamentals Quiz
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