Differences between Hire Purchase and Leasing
There are a number of differences between hire purchase and leasing. They are given below
1. Transfer of ownership
In Hire purchase, the agreement is entered for the transfer of ownership after a fixed period. But in Leasing it is only in financial lease, the ownership will get transferred. While in operating lease, the ownership is not transferred.
2. Agreement type
Hire purchase is a tripartite agreement involving the seller, finance company and the purchaser / hirer whereas Leasing is only a bipartite agreement, involving lessor and lessee.
3. Depreciation Claim
Depreciation is claimed by the purchaser / hirer in a hire purchase. But in leasing, Depreciation is claimed by the lessor in the lease agreement.
4. Buyers count
In hire purchase, the goods or property is sold once and there cannot be more than one buyer. But in operating lease, though the lessor can be one person, there can be a number of lessees.
5. Period of Agreement
Period of HP agreement is longer as valuable goods or properties are purchased. But in Leasing, the period of lease will be of shorter duration as technological changes will affect the lessee.
6. Relationship in agreement
The relationship between the seller and the buyer will be that of owner and hirer in a hire purchase. But the relationship in a lease agreement is that of lessor and lessee.
7. Transfer of ownership
In Hire purchase ownership passes on to the buyer only on the last installment from the finance company. But in leasing, the Ownership will pass on when the lessor has acquired enough money from the lessee, which is equivalent to the value of the goods or equipment.
Hire Purchase agreement is more common with the consumer durable goods. But lease agreement is entered more among business concerns.
8. Sales Tax
Sales tax is paid by the buyer on the total value of goods in a hire purchase. Sales tax depends on the actual value at the time of sale in leasing.
9. Payment defaults
Any default in payment of installment enables the seller / finance company to seize the goods from the purchaser / hirer. On the termination of lease agreement if it is a operating lease, the equipment is taken back by the lessor. In the case of financial lease, the equipment can be sold for a particular value to the lessee.
10. Interest rates
The interest rate charged on HP is on a flat rate which is distributed for the entire period of HP agreement and collected along with the principal amount on the equated monthly installment basis. In leasing, Interest does not form a major part of lease agreement, but the lease charges will include interest also as a part of it.