What is Hire Purchase Transaction

High purchase transaction is the transaction of business in which purchaser of any asset does not pay the full amount to seller. He pays small amount in advance and start to use of same asset. All pending payment is paid by purchaser installments. This is because, there is not sufficient payment in the pocket of purchaser at the time of buying. So, this type of agreement is done between buyer and seller.

For example Mr. A went to the bike shop and wanted to buy a bike whose cost was Rs. 50000. 50% of it, he paid in advance, rest will be paid in 10 installments with its interest. So, this type of transaction is hire purchase. Hire means get possion on rent. It means, purchase of anything through rent payment.

Hire purchase transaction may be happen on high cost value asset's buying. For example buying of land, property, car, machine. Buyer can not afford big amount. So, best option is to do hire purchase agreement. Payment in small installment is easy that lumb-sum payment. In daily use, we can see these type of transaction when we buy washing machine or AC or motor cycle. In India, Middle class people buy these types of domestic use items through hire purchase.

Hire Purchase Vs Lease

In hire purchase, buyer will get  the ownership  at the beginning of the contract but in lease, buyer will get the  ownership of asset after full payment of contract.

Related : Accounting of Hire Purchase