Difference between Hire Purchase and Installment Sale
The following are some of the difference between Hire Purchase and Installment Sale
(Image: Hire purchase vs Installment Sale)
1. There are 3 parties in Hire Purchase trade namely the seller, the financier and the buyer. There are only 2 parties involved in Installment sale namely the seller and buyer.
2. There are 3 agreements in a hire purchase, namely between the (a) seller and financier. (b) financier and buyer and (c) buyer and seller. But in Installment sale, there is only one agreement between the buyer and seller.
3. Hire purchase is an agreement to hire and later to buy. Installment is an agreement to buy.
4. In hire purchase, the ownership transfers from the seller to the financier and then to the buyer on the payment of the last installment. In Installment sale, The ownership transfers on the first installment from the seller to buyer.
5. In hire purchase, when there is a default in payment, the financier will take back the goods from the buyer. In installment sale, if there is a default of payment, the seller cannot take back the goods, but can only sue the buyer.
6. In Hire purchase, any damage to the goods will only lead to claiming of insurance by the financier from the insurance company since the ownership has not been transferred. In installment sale, any damage to the goods will be claimed by the buyer from the insurance company.
7. Buyer cannot sell the goods to any third party until he pays the last installment to the financier in hire purchase. In case of installment sale, the buyer can sell to any third party as he is the owner of the goods.
8. The interest rate in hire purchase will be on a flat rate basis and is included in the installment and recovered as equated monthly installment (EMI).
Example: Car finance by Sundaram Finance. The interest rate in installment sale is on a declining basis as every installment paid will reduce the principal amount and hence the total interest payable is lesser than H.P scheme. Example: Bank finance for purchase of consumer goods.