Sale vs Hire Purchase: Difference and Comparison

Key Takeaways

1. Ownership Transfer: In a sale, the ownership of the goods is transferred to the buyer immediately upon purchase. In a hire purchase agreement, the ownership of the goods is transferred only after the final installment is paid, even though the buyer can use the goods immediately.
2. Payment Method: A sale involves a one-time payment for the goods, and the transaction is considered complete once the payment is made. A hire purchase, on the other hand, involves an initial deposit followed by a series of installment payments over a pre-agreed period.
3. Risk and Rewards: In a sale, since the ownership is transferred immediately, the buyer bears all the risks and rewards related to the goods. In a hire purchase, the risks and rewards are initially with the seller (or financier). Only when the full payment is made, and ownership is transferred, does the buyer bear the full risks and rewards associated with the goods.

What is Sale?

Sale refers to exchanging goods or services for money or other forms of consideration. It is a transaction between a buyer and a seller, where the seller offers products or services for purchase, and the buyer agrees to acquire them by providing payment.

In a sale, the seller promotes and markets their products or services to potential buyers, highlighting their features, benefits, and pricing. On the other hand, the buyer evaluates the offerings and decides based on their needs, preferences, and budget.

What is Hire Purchase?

A hire purchase, also known as an installment plan or a hire agreement, is a financial arrangement that allows individuals or businesses to acquire an asset, such as a vehicle, equipment, or furniture, over a specified period. It involves a contract between the buyer (hirer) and the seller (hirer) where the buyer pays for the asset in installments while using it.

In a hire purchase agreement, the buyer makes an initial down payment, followed by a series of regular installments over an agreed-upon period. The ownership of the asset remains with the seller until the buyer completes all the expenses, including any interest or finance charges.

Difference Between Sale and Hire Purchase

1. In a sale, ownership of the asset is transferred to the buyer immediately upon completion of the transaction. On the other hand, in a hire purchase agreement, ownership remains with the seller until the buyer completes all the payments. Only then is ownership transferred to the buyer.
2. In a sale, the buyer pays the full purchase price upfront or in a single payment. In contrast, a hire purchase involves the buyer paying for the asset in installments over a specified period, including any interest or finance charges.
3. In a sale, the buyer has complete rights and control over the asset, including its use and disposal. In a hire purchase, the buyer has the right to use the asset during the hire period, but the ownership and control remain with the seller until all payments are made.
4. In a sale, once the transaction is completed, the buyer has no obligation to return the asset to the seller. In hire purchase, if the buyer defaults on payments or breaches the agreement, the seller may terminate the contract and repossess the asset unless alternative arrangements are made.
5. In a sale, the buyer bears all costs related to the asset, including maintenance, repairs, and insurance. In a hire purchase, the buyer is responsible for maintaining the asset in good condition and may be required to fulfill certain usage and maintenance obligations specified in the agreement.

Comparison Between Sale and Hire Purchase

Parameters of Comparison	Sale	Hire Purchase
Ownership	Ownership of the asset is transferred to the buyer immediately upon completion of the transaction.	Ownership remains with the seller until the buyer completes all payments. Ownership is transferred to the buyer at the end of the hire period.
Payment Structure	Typically involves a single upfront payment or payment in full at the time of purchase.	Involves payment in installments over an agreed-upon period, including any interest or finance charges.
Usage Rights	The buyer has complete rights and control over the asset, including its use and disposal.	The buyer has the right to use the asset during the hire period, but ownership and control remain with the seller until all payments are made.
Return of Asset	Once the sale is completed, the buyer has no obligation to return the asset to the seller.	If the buyer defaults on payments or breaches the agreement, the seller may terminate the contract and repossess the asset unless alternative arrangements are made.
Financial Responsibility	The buyer bears all costs related to the asset, including maintenance, repairs, and insurance.	The buyer is responsible for maintaining the asset in good condition and may be required to fulfill certain usage and maintenance obligations specified in the agreement.

References

1. https://www.jstor.org/stable/1092086?casa_token=7WgSsBc9T7MAAAAA:EABtjtkd4N4MzHGt51XSsu8YBLDZmLXxqiX7g20P9BlqBzDG1_q3SHdOEiw212Qrhzif5Pck8IggZraIyBj1SsXKq_pK9qtyZ969wNl1vYcbHAgTIUw
2. https://onlinelibrary.wiley.com/doi/abs/10.1002/tie.20141

Last Updated : 22 August, 2023