Hire Purchase System

Hire purchase system is a system whereby the owner of the goods lets them on hire for periodic payments by the hirer upon an agreement that when a certain number of payments have been completed, the absolute property in the goods will pass to the hirer, but so that the hirer may return the goods at any time without any obligation to pay any balance of rent accruing after return; until the conditions have been fulfilled the property remains in the owner.

In a hire purchase transaction certain goods are delivered by the owner, called the hire vendor to a person called the hire purchaser or hirer with a condition that the hire purchaser will pay the agreed price of the goods which is inclusive of certain amount of interest. The hire purchaser acquires the goods immediately on signing the hire purchase agreement but ownership or title of the same is transferred only when the last instalment is paid. The effect of this arrangement is that the hire vendor can repossess the goods if the hire purchaser fails to pay any instalment at any stage. The goods can be taken back even when sold to third party by the hire purchaser. The sums paid by the hire purchaser prior to the repossession of goods by the hire vendor are treated as hire charges for using the property and the same are not refundable if the hire purchaser does not want to continue the hire purchase agreement.