Question

Distinguish between hire purchase system and installment system.

Answer 1

Distinguish Between Hire Purchase System and Installment Payment System? Hire Purchase System: Under the Hire Purchase System the customer (Hire Purchaser) obtains possession of the goods at the outset and can use it, while paying for it by installments over an agreed period of time.

Answer 2

Difference Between Hire Purchase System And Installment Payment System

Hire Purchase System :-

• Hire Purchase System is an Agreement which later becomes Sale of a particular commodity.

• In Hire Purchase System, the ownership is transferred to the customer only after all the installments are paid.

• In Hire Purchase System, the seller has a right to take the goods back if costumer fails to the pay the Installment.

• Purchaser doesn't have a right to transfer the goods to a third party.

• If a purchaser fails to pay the Installment, then the vendor has a right to take the goods back considering the prepaid Installments by Purchaser as a rent.

• The seller or vendor bears risk of repairs and maintenance of the goods .

• There are two methods of accounting in the books of Purchaser - Assets Accrual Method and Credit Purchase Method .

• The vendor bears the minimum risk on sale in Hire Purchase System.

Installment Payment System :-

• Installment Payment System is a contract on credit basis and is made from the beginning.

• Here, the ownership is transferred to the costumer at the beginning after the first installment.

• Here, the vendor does not have a right to take the goods back , if the costumer fails to pay the money in Installment.

• Here, Purchaser can transfer the goods to a third party after the first installment.

• Here, the vendor can claim in court for the recovery of outstanding amount.

• In Installment Payment System, the vendor does not have risks concerned with repairing and maintenance of the commodity.

• In Installment Payment System, the accounts are maintained by only one method.

• Here, the buyer bears maximum risks.

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