Hire Purchase, as the name suggests, is the system of trade in which one party pays for the cost of the asset in a number of instalments while making use of that asset. In this system, the ownership of the asset is transferred by the hire vendor only on the full-fledged payment of the remaining balance.
On the other hand, the sale represents the actual sale of goods, in which the ownership and possession both are transferred to the customer, instantly by the seller.
Nowadays, people want to live a comfortable life with all the facilities, but at the same time, they do not have that buying power, with which they can afford all the stuff they require for a lavish lifestyle. Hire Purchase is one of the coolest option available for people than to go for actual sale by making complete payment. Let’s have a look at their differences.
Content: Sale Vs Hire Purchase
|Basis for Comparison||Sale||Hire Purchase|
|Meaning||Sale implies a transaction between buyer and seller under a contract, wherein the buyer acquires goods or services, in exchange for money.||Hire Purchase refers to a form of purchase in which the buyer acquires the asset by making down payment, however, the entire purchase price of the asset can be paid over the stipulated time through periodical instalments.|
|Governing Act||Sale of Goods Act, 1930||Hire Purchase Act, 1972|
|Timing of transfer of property||Immediate||On the payment of the last instalment|
|Position of buyer||The buyer's position is that of the owner.||The hire purchaser's position is that of the bailee, till he pays the final instalment due.|
|Treatment of Payment||Price of the goods.||Hire charges for the use of the asset, until the purchase option is exercised by the hire purchaser.|
|Non-payment of the amount due||The seller can take legal action against the buyer.||The vendor can repossess the goods.|
|Termination||The buyer cannot terminate the contract, and he/she is obligated to pay the price.||The hire purchaser can terminate the contract by returning the asset to the vendor and has no liability to pay the instalments in full.|
|Insolvency||If the buyer becomes insolvent, the seller has to bear the risk of loss.||If the purchaser becomes insolvent, the seller can repossess the asset.|
|Repair of goods||Buyer||Hire vendor|
|Transfer of title to the third party||As ownership is transferred, the buyer can transfer a good title to the bonafide purchaser.||As ownership is not transferred, the hire purchaser cannot transfer a good title to the bonafide purchaser.|
|Resale||The buyer can resell the goods.||The hirer does not enjoy such right to resell the goods unless he has paid all the instalments.|
Definition of Sale
In a contract of sale of goods, the seller transfers or agrees to transfer the property in goods to the buyer, for a definite return i.e. price. It represents the usual deal between the parties, i.e. buyer and seller. The parties to the contract of sale have the right to modify the provisions of law by explicit preconditions.
It is a form of contract that is formally governed by law. It can be absolute or conditional.
Types of Contract of Sale
There are two types of the contract of sale: Sale and Agreement to Sell
- Sale: When in a contract of sale, there is an immediate transfer of property in the goods from the seller to the buyer of goods, for a price, it is called a sale.
- Agreement to Sell: When in a contract of sale, the transfer of property in the goods from the seller to the buyer will take place at a future specified date or subject to the fulfilment of some conditions, such a contract is called as agreement to sell. It reflects the intention to transfer, the property in goods when the conditions are fulfilled.
Elements of Contract of Sale
- Parties: At least two parties must be present to constitute the sale, i.e. buyer and seller.
- Presence of Subject Matter: The presence of subject matter, i.e. goods is important in a contract of sale, which must be a movable item.
- Price: The price of goods should be paid or promised to be paid monetarily and not in kind.
- Transfer of Property: There has to be a transfer of property in goods.
- Elements of Contract: All the essential elements of a contract must be there in a contract of sale.
Definition of Hire Purchase
Hire purchase is a type of a business arrangement in which the customer pays the cost of the asset in the form of an initial down payment and the outstanding balance in instalments, which can be monthly quarterly or yearly. During the period, the ownership of the asset rests with the seller i.e. hire vendor, until the customer, i.e. hire purchaser settles his entire liability.
Further, the agreed instalments include price plus interest on the asset provided on credit to the hire purchaser. In this way, the final amount that is being paid in the form of instalments during the course of time and the down payment made will be higher in comparison to the cash down price of the asset.
In this system, both the parties gains something, as the purchaser gets the right to use the asset immediately, without making the complete payment at the time of contract. So, the purchaser not just gets the product, but also credit from the seller. On the other hand, the seller gets the cost of credit as well as he enjoys the increase in sales.
Characteristics of Hire Purchase System
- Ownership: The ownership of the asset is transferred to the hire purchaser when he makes payment of the final instalment and exercises the option of purchasing the asset.
- Instalments: There is a precondition on the delivery of the goods that the hire purchaser should make payments of the agreed instalments.
- Down payment: A specified sum is paid on signing the agreement by the hire purchaser, called as a down payment.
- Possession: The possession of the asset is immediately transferred to the hire purchaser, once the contract is entered into, by the parties concerned.
- Repossession: When the hire purchaser defaults in the payment of instalment, no matter if the instalment is first or last, the hire vendor has the right to repossess the goods.
Key Differences Between Sale and Hire Purchase
The difference between sale and hire purchase can be drawn clearly on the following grounds:
- A contract of sale is one in which the customer buys or agrees to buy certain goods from a seller, at an agreed-upon price. On the contrary, Hire Purchase refers to a system of buying the asset, wherein buyer acquires the possession of the asset with down payment and completes the purchase by paying periodical instalments, and the seller retains the ownership until the final instalment against the asset is paid.
- The contract of sale is governed by the Sale of Goods Act, 1930, whereas the hire purchase contract is governed by the Hire Purchase Act, 1972.
- When a sale is made, the ownership of goods is transferred immediately to the buyer of the goods. On the contrary, in case of hire purchase, the ownership of the asset is transferred to the hire purchaser, on the payment of the last instalment.
- In case of a sale, the buyer’s position is that of the owner. In contrast, the position of the hire purchaser is just like a bailee in the contract of bailment, until he pays the final instalment due.
- In the sale, the payment is made in lumpsum, i.e. one-shot payment either in cash or via cheque or via online modes. As against, in hire purchase, payment is made in instalments.
- In the sale, the consideration covers the price of the goods purchased. Conversely, in hire purchase, the consideration includes the hire charges for the use of the asset, along with the price of the asset.
- On the non-payment of the amount due, in case of a sale, the seller can only take legal action against the buyer but cannot take back the goods. However, in hire purchase, the hire vendor can repossess the goods, when the hire purchaser defaults in payment.
- In case of sale of goods, the buyer cannot terminate the contract, and he/she is obligated to pay the price. On the flip side, the hire purchaser can terminate the contract by returning the asset to the vendor and has no liability to pay the instalments in full.
- In the case of hire purchase, the hire vendor does not have to bear the risk of loss due to the insolvency of the hire purchaser because the hire vendor can simply repossess the goods. As opposed, in case of a sale, the seller of the goods has to bear the loss due to insolvency.
- When it comes to repairing, the hire vendor has to bear the expenses of repair in case of hire purchase. Contrastingly, in a sale contract, the buyer of the goods bears any expenses related to the repair of the goods, once the goods are sold.
- In case of a sale, the buyer becomes the ultimate owner of the goods, and so the buyer can transfer a good title to the third party. On the other hand, in case of hire purchase, as only the possession of the asset changes and not the ownership, the hire purchaser cannot transfer a good title to the third party.
The contract of sale can be oral or written, that means there is no compulsion as to the writing of the contract. However, in case of hire purchase, the contract has to be in writing and must be signed by both the parties – hire purchaser and hire vendor.