Hire Purchase: Meaning, Features, Advantages and Disadvantages

Meaning:
Hire purchase is a method of financing of the fixed asset to be purchased on future date. Under this method of financing, the purchase price is paid in installments. Ownership of the asset is transferred after the payment of the last installment.

Features of Hire Purchase:

The main features of hire purchase finance are:

  • The hire purchaser becomes the owner of the asset after paying the last installment.

Advantages of Hire Purchase:

Hire purchase as a source of finance has the following advantages:

  • Financing of an asset through hire purchase is very easy.

Disadvantages of Hire Purchase:

Hire purchase financing suffers from following disadvantages:

  • Ownership of asset is transferred only after the payment of the last installment.

Term Used in Hire Purchase agreement;

  • Hire Purchaser: He is buyer in hire purchase agreement.

HIRE PURCHASE IS BEST SUITABLE FOR
Small scale companies and entrepreneurs can benefit from Hire Purchase. Expensive and important assets can be hired and later owned. This ensures that they can start using the asset from very first day and use the money earned to later buy the same assets.

Conclusion

Hire Purchase is an important source of financing in recent times. It provides a convenient way to afford and acquire assets that otherwise be financially unattainable. Thus, hire purchase also helps a nation’s economy to grow further. However, before entering an agreement, one should clearly understand the costs involved and the disclosures provided. There are various other like term loan and installment purchase which looks similar but there is the difference between hire purchase and term loan and also there is the difference between hire purchase and installment purchase.

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