A Business Encyclopedia

Hire-purchase Company

Definition: The Hire-Purchase Company is yet another non-banking finance company that principally deals in the business of hire-purchase transactions and the financing of such activities.

The Hire-Purchase means buying the goods on an installment plan. This means the hirer can buy commodities in exchange for the regular installment payments (principal amount+ interest) over a period of time. The main sources of funds of the hire purchase company are retailers and wholesalers, hire-purchase finance companies and banks and financial institutions.

The Hire-Purchase agreement is a kind of lease agreement wherein the hiree (lessee) purchases the assets and transfers its possession to the hirer (lessor) in exchange for the periodical installment payments. Now, a question may arise that, if the hire-purchase agreement is a kind of lease agreement, then why a hire-purchase company is required when the same business can be carried on by the leasing company? This is because the nature of both the businesses is very different.

Often, the consumers who want to purchase the assets, machinery, or white goods, which are relatively low-priced, come to the Hire-Purchase companies to buy these on an installment plan. Whereas, in the case of individuals who want to buy a property Viz. Land or building, relatively high-priced, goes to the leasing company to get its possession on a lease. Also, the duration of the hire-purchase agreement is shorter than the lease agreement and, therefore, the credit requirements for both the types of businesses differs.

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