There is sometimes confusion between the term hire purchase and the term instalment system. The difference between hire purchase and installment system is on:
- Ownership,
- Repossession,
- Voluntary return of goods,
- Parties involved and
- Liability.
Difference between Hire Purchase and Installment System
1. Repossession:
Under hire purchase, the hire vendor has the legal right to repossess the goods in possession of the hire purchaser whereas repossession is not possible under the instalment system.
In hire purchase, repossession is initiated in case of default or any other valid reason that qualifies for a repossession.
In instalment purchase system, the seller has no legal rights to take back goods sold on credit in case of default of any instalment by the buyer.
2. Ownership:
Under hire purchase, the legal owner of the commodity sold remains with the hire vendor but in the instalment system, ownership is transferred to the buyer once they sign an agreement with the seller to start paying instalments.
Hire purchaser has all the rights that the owner is entitled to. The ownership is transferred to the him or her after the full payment of the instalment.
For the instalment system, a buyer can enjoy all ownership rights under the instalment system for purchase.
3. Voluntary return of goods:
In a hire purchase agreement, the hire purchaser has the legal right to return goods to the hire vendor but goods bought under the instalment system cannot be returned by the buyer.
If the hire purchaser meets the conditions of returning goods under hire purchase, then it is an available option for the hire purchaser. Hire purchasers can initiate a return without the hire vendor defaulting anything in the agreement.
In n instalment purchase system, the buyer is bound to pay all instalments. The only scenario where a return could be viable is if the seller is responsible for the default. In normal cases, one must strive to pay all instalments in full.
4. Parties involved:
In the case of a hire purchase, it is characterized by two parties. This is the person intending to seek the hire purchase financing and the person to extend the hire purchase financing. The party requesting a hire purchase form of financing is called the hire purchaser. This can be a natural person or a company. The party extending the hire purchase financing is called the hire vendor. This is the person with the ownership of the item in question.
In the case of the instalment system, there is a buyer and a seller. A buyer is taking goods on credit, and the seller gives the customer his merchandise on credit.
5. Liability:
In the hire purchase, the liability lies with the hire vendor. He is the owner of a commodity in question; thus, any risks of damage are a burden to the hire vendor. In extreme damage beyond scarp, the hire vendor suffers such risks of loss.
In contrast, sellers are not liable for damages and risks of loss suffered by the item in question. Since they are not legal owners, buyers must meet the cost of damage and losses. The buyer assumes legal ownership under the instalment system once an agreement of credit purchase is signed.
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