Hire Purchase Evolution of Credit Finance Essay

Business has evolved since the ancient times from barter, business, commercial venture, general manufacturing to specialized manufacturing today. Initially, only the seller and buyer were parties to a business transaction. The title to the asset is given by bill or invoice. Bill is used for consumables or low value assets that are usually purchased in cash. Invoice is used to specify durables or high value assets that are purchased on credit. Sales can be in either cash or credit. The two tasks for the seller are to sell and to monitor credit.

Credit/ loan were evolved to bridge the gap between the purchasing power and demand. Over time credit organizations differentiated into sales and finance organizations. Today, three parties are involved in business transactions: seller, buyer and financier.

HISTORY OF HIRE PURCHASE

Hire purchase originated in England and is now unique to former British colonies. The financier purchases the asset and lets it on hire to the user. The user exercises an option to purchase the asset at the end of the contract after paying all the dues. HP is a transaction in which the purchaser of goods pays an initial deposit and takes possession. Subsequent installments are made over a specified time after which ownership passes to the purchaser. The parties to the contract are Owner (financier) and Hirer (purchaser / user). The installments are called Hire Money. If there is a default in the payment of any installment, the financier retains the right to repossess the asset from the purchaser without any refund.

Sundaram Finance is one of the first hire purchase companies in India. In fact, they were instrumental in the creation of the Hire Purchase Act of 1972.

ELEMENTS OF HIRE PURCHASE AGREEMENT

To be a valid hire purchase agreement, the following elements must be clearly specified in writing and signed by the hirer as well as the financier:

Identifying attributes of the asset, such as chassis number, engine number etc.

Cash price of the goods i.e. price at which the goods may be purchased

Hire purchase price, which is the amount payable by the hirer under the agreement

Down payment or initial hire payable by the hirer

Number, amount and date of each installment payable by the hirer

Date of commencement of hire purchase agreement

Rate of interest charged by financier

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