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Hire Purchase

Forms of Hire Purchase Agreements

Hire-purchase agreements are of two forms.

  1. In the first form the goods are purchased by the financier from the dealer and
    • the financier obtains a hire-purchase agreement from the customer,
    • under which the customer becomes the owner of the goods
    • on payment of all the installments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price.
    • The owner gets his money from the financier, who recovers the cost from the customer.
  2. In other form
    • the customer purchases the goods and he executes a hire-purchase agreement with a financier,
    • under which he remains in possession of goods, subject to payment of amount paid by the financier on his behalf to the owner.
    • The financier gets a right to seize the goods in the event of non-fulfillment of conditions of hire-purchase agreement by the customer.

Nature of Agreement - The true nature of the transaction is determined from the terms of the agreement and the court unless prohibited by statute can go behind the documents to determine the true nature of the transaction

If the purchaser desiring to purchase the goods, who is not having sufficient money for purchasing the same, borrows the amount from a third party and pays it over to the vendor, the transaction between the customer and the third party will be a loan transaction.

The true nature of the transaction will not change if the lender himself is owner of the goods and he accepts the promise by the purchaser to pay the balance money due against delivery of goods

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