Session_3-Hire_purchase - Non Banking Financial Services P...

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Click to edit Master subtitle style 5/30/11 Non Banking Financial Services PGPBFS-2010-11 Session 3
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5/30/11 Hire purchase
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5/30/11 Hire Purchase … meaning and characteristics Hire purchase is a contract in which an asset ( generally a plant, machinery or equipment) is let on hire, by the owner to the user/hirer against payment of periodic hire charges in the form of installments, with typically, the provision of transferring the legal
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5/30/11 Hire purchase versus leasing 1) Ownership : For a lease contract the ownership remains with the lessor ( even for a capital lease it is transferred to the lessee only on exercise of the end of term lease option) . For a hire purchase contract the possession of the asset is delivered to the hirer at the time of entering the contract and the property or legal
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5/30/11 Hire purchase versus 3) Tax : The entire lease payments are eligible for tax computation in the books of the lessee( for operating lease), whereas only the interest portion of the hire
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5/30/11 Hire purchase versus leasing Maintenance: Cost of maintenance of the hired asset has to be borne typically by the hirer himself. In case of finance lease only, the lessee does the maintenance. For other kinds of leases the maintenance is the responsibility of the lessor. Reporting : In the books of the lessee the leased assets will be disclosed by way of
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5/30/11 77 Hire Purchase vs Installment In an installment sale ,the contract of the sale is entered into, the goods are delivered and the ownership is transferred to the buyer, but the price of the goods is paid in specified installments over a definite period. Hire purchase and installment sale look somewhat similar but the principal difference is : In an installment sale ,the ownership in the goods is transferred to the purchaser with the payment of the first or initial installment, whereas in hire purchase the ownership is transferred to the hirer only when he exercises the option to purchase on payment of the last installment .
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5/30/11 Modus Operandi of a hire purchase contract Generally there are two parties in a hire purchase contract… the intending seller and the intending purchaser or the hirer Sometimes it may involve three parties also : the intending seller the hirer and
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5/30/11 Hirer Financier Seller 1 2 3 4 5 6 7 8 9 10 Modus Operandi of a tripartite hire purchase contract
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