A Business Encyclopedia


Definition: The Hire-Purchase is a kind of a lease agreement wherein the hiree, the counterpart of lessor purchases the asset and gives it on hire to the hirer, the counterpart of the lessee in exchange for the fixed number of periodical installments inclusive of the interest amount and the principal amount.

In the case of a Hire-purchase agreement, the hirer is supposed to pay interest along with the principal amount. The interest is usually charged on the amount initially paid by the hiree on the purchase of the investment and not on the diminishing balance. It differs from the traditional lease agreement in one of the following forms:

  1. In the case of a hire-purchase agreement, the hirer can claim depreciation for the tax purposes while in the case of a lease agreement the lessee cannot claim any depreciation.
  2. Only the interest component in the hire-purchase installment is tax deductible, whereas, in the case of the lease agreement, the entire lease rent is tax deductible.
  3. One of the differences between hire-purchase and the lease agreement is that, in case of the former type the hirer is the owner of the property and hence, enjoys the salvage value of the asset, while in the latter form, the lessee is not the owner of the property and thus, do not enjoy the salvage value.

Thus, in the case of a hire-purchase, the possession of property gets immediately transferred to the hirer, and the payment for the same is made in an equal number of installments. But however, the ownership of the property gets transferred only with the payment of last and final installment. A car purchase is a very good example.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

deontological definition examplewho is intrapreneurego meaning in psychologywhat is indifference curve analysis what are its propertiesretrenchment defmeaning of fiscal deficitdiminishing marginal utility economicsegoism in business ethicsbank lockbox systemsampling defojt definitiondefine snowball samplingunemployed defmcclelland's three needs theorydefinition of intrapreneureconometric forecastingjob enrichment definitionneft fund transferhomogeneous meaning in tamilprimal and dual problemtechniques of collective bargainingpluralistic approachsocial influence on buying behaviorequity and expectancy theoryisoquant definitionmeaning of dialecticjohn adams equity theoryphotocopy machine definitionwhat is npcigdp at market prices formulathe theory of purchasing power paritywhat is scalar chainwhat does kiosks meansuperiority meaning in urdudefinition of divestedpsychoanalysis meansmoral suasion economicsconcept of 6 sigmawhat is cheque truncation systemmeaning laissez fairedefine snowball samplethe equity theory of motivationdefinition of segmentingdefinition of bank chequeproject evaluation and review technique pertoperating leases definitionadvantages and disadvantages of ethnocentrisminventory turnover meaningconsumer equilibrium definition economicsdefinition stepping stonedefine speculatingansoff growthdematerialisation of shares meaningmalthusian cycleformula of average collection periodadvantages and disadvantages of ethnocentrismdefinition investituredefine entrepreneur and entrepreneurshipmichael porter's five forcesguerrilla attackshow do marketers obtain primary datastraddling positionexamples of brand extensionsconstant elasticity demand functionautocratic approachsebi guidelinesdefinition of buyer behaviourexamples of fmcg productsbrand revitalisation examplesprocess of hrmcheque truncation systemexample of id ego superegocrr and slr meaningsampling quota