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What is the difference between Hire Purchase & Lease Finance
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Answer Posted / ameet narayankhedkar
A lease transaction is a commercial arrangement whereby an
equipment owner or Manufacturer conveys to the equipment
user the right to use the equipment in return for a rental.
In other words, lease is a contract between the owner of an
asset (the lessor) and its user (the lessee) for the right
to use the asset during a specified period in return for a
mutually agreed periodic payment (the lease rentals). The
important feature of a lease contract is separation of the
ownership of the asset from its usage. Lease financing is
based on the observation made by Donald B. Grant: "Why own a
cow when the milk is so cheap? All you really need is milk
and not the cow."
Hire purchase is a type of instalment credit under which the
hire purchaser, called the hirer, agrees to take the goods
on hire at a stated rental, which is inclusive of the
repayment of principal as well as interest, with an option
to purchase. Under this transaction, the hire purchaser
acquires the property (goods) immediately on signing the
hire purchase agreement but the ownership or title of the
same is transferred only when the last instalment is paid.
The hire purchase system is regulated by the Hire Purchase
Act 1972. This Act defines a hire purchase as "an agreement
under which goods are let on hire and under which the hirer
has an option to purchase them in accordance with the terms
of the agreement and includes an agreement under which:
1) The owner delivers possession of goods thereof to a
person on condition that such person pays the agreed amount
in periodic instalments
2) The property in the goods is to pass to such person on
the payment of the last of such instalments, and
3) Such person has a right to terminate the agreement at any
time before the property so passes".
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