A Hire Purchase Agreement is a contract where the owner of goods lets the goods/asset on hire basis and the hirer is required to pay installments to the owner for use of goods/asset. The hirer is free to take the ownership of the asset after paying the last installment. It is not an outright sale by the owner but it bears similarity to the contract of bailment.

The Seller usually charges the original price of the asset or goods along with an interest which is paid as monthly installment by the Buyer. In the event of buyer failing to pay the installment, the seller may take repossession of goods/asset thereby terminating the hire purchase agreement. The Buyer is free to terminate the agreement at any time and he is also under no obligation to purchase the asset at the end of completion of installments.


The buyer must ensure that the asset being transferred under a hire purchase agreement is actually owned by the seller possessing a rightful title. Secondly, the buyer must ensure that the cumulative installments paid by the buyer during the hire purchase agreement don’t exceed the actual price of the asset/goods let out. The hire purchase price is not to be confused with the cash price of the asset as they are two different things. Hire purchase price is inclusive of cash price along with interest signifying the risk undertaken to let the asset on hire.


The Hirer is required to undertake certain responsibilities which must be set out in the hire purchase agreement such as maintaining the asset/goods in a good condition, permitting the owner to pay visit at the site where asset/ goods are placed, non-indulgence in any activity which may prejudice the owner’s right in the asset let out on hire, usage of goods/asset only for lawful purposes which is in consonance with the legal statute or the law of the land.  If the agreement contains a clause about insurance of goods then the Hirer is required to comprehensively insure the goods/asset to keep them free from damage of unforeseen nature.


There are a number of ways for terminating the hire purchase agreement:

One is the performance of stated promises as laid down in the agreement after which the agreement comes to an end such as payment of installments and transfer of ownership of property.

Second is efflux of time when the time stated for the buyer to purchase the property comes to an end as the buyer does not exercise that option in that time frame.

Another option is to give notice intimating the other party about the intention to bring the agreement to an end.

Releasing the other party to perform the obligations of the contract is also a medium of termination of the contract.

In the event of any party breaching the terms of the agreement where the object of the contract gets frustrated then the hire purchase agreement gets terminated.


Most of the businesses have adopted the idea of asset-based financing because they cannot afford the outright purchase of the heavy equipment which is used in their daily business. Firms are engaged in either hire or lease of an asset which also releases tax burden through depreciation. So the hire purchase financing has become an important aspect in the changing economic and financial trend.

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