Hire Purchase Agreement - Definition - Law Dictionary

Definition :

Hire-purchase agreement, Hire-purchase agreements are executor contracts under which the goods are let on hire and the hirer has an option to purchase in accordance with the terms of the agreement. These types of agreements were originally entered into between the dealer and the customer and the dealer used to extend credit to the customer. But as hire-purchase scheme gained in popularity and in size, the dealers who were not endowed with liberal amount of working capital found it difficult to extend the scheme to many customers. Then the financiers came into the picture. The finance company would buy the goods from the dealer and let them to the customer under hire-purchase agreement. The dealer would deliver the goods to the customer who would then drop out of the transaction leaving the finance company to collect installments directly from the customer. Under hire-purchase agreement, the hirer is simply paying for the use of the goods and for the option to purchase them. The finance charge, representing the difference between the cash price and the hire-purchase price, is not interest but represents a sum which the hirer has to pay for the privilege of being allowed to discharge the purchase price of goods by installments, Charanjit Singh Chadha v. Sudhir Mehra, (2001) 7 SCC 417: AIR 2001 SC 3721 (3723); K.A. Malhai v. Kowa Bibbikutty, (1996) SCC (Cri) 281: (1996) 7 SCC 212; R.M. Goode, Hire Purchase Law and Practice, 2nd Edn., p. 846.

It means 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--

(i) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments, and

(ii) the property in the goods is to pass to such person on the payment of the last of such installments, and

(iii) such person has a right to terminate the agreement at anytime before the property so passes. [Hire-Purchase Act, 1972 (2 of 1972), s. 2 (c)]