What is the difference between 'Sale' and 'Hire Purchase'?

Question: What is the difference between 'Sale' and 'Hire Purchase'? [RJS 1984]

Find the answer to the Law of Sale of Goods only on Legal Bites. [What is the difference between 'Sale' and 'Hire Purchase'?]

Answer

In a contract of sale of goods, the seller transfers or agrees to transfer the property in goods to the buyer, for a definite return i.e. price. It represents the usual deal between the parties, i.e. buyer and seller. The parties to the contract of sale have the right to modify the provisions of law by explicit preconditions. It is a form of contract that is formally governed by law. It can be absolute or conditional.

On the other hand, Hire purchase is a type of business arrangement in which the customer pays the cost of the asset in the form of an initial down payment and the outstanding balance in instalments, which can be monthly quarterly or yearly. During the period, the ownership of the asset rests with the seller i.e. hire vendor, until the customer, i.e. hire purchaser settles his entire liability.

Further, the agreed instalments include price plus interest on the asset provided on credit to the hire purchaser. In this way, the final amount that is being paid in the form of instalments over the course of time and the down payment made will be higher in comparison to the cash down price of the asset.

In this system, both parties gain something, as the purchaser gets the right to use the asset immediately, without making the complete payment at the time of the contract. So, the purchaser not just gets the product, but also credit from the seller. On the other hand, the seller gets the cost of credit as well as enjoys the increase in sales.

Key Differences Between Sale and Hire Purchase

The difference between sale and hire purchase can be drawn clearly on the following grounds:

1. A contract of sale is one in which the customer buys or agrees to buy certain goods from a seller, at an agreed-upon price. On the contrary, Hire Purchase refers to a system of buying the asset, wherein the buyer acquires the possession of the asset with a down payment and completes the purchase by paying periodical instalments, and the seller retains the ownership until the final instalment against the asset is paid.

2. The contract of sale is governed by the Sale of Goods Act, 1930, whereas the hire purchase contract is governed by the Hire Purchase Act, 1972.

3. When a sale is made, the ownership of goods is transferred immediately to the buyer of the goods. On the contrary, in case of hire purchase, the ownership of the asset is transferred to the hire purchaser, on the payment of the last instalment.

4. In case of a sale, the buyer’s position is that of the owner. In contrast, the position of the hire purchaser is just like a bailee in the contract of bailment, until he pays the final instalment due.

5. In the sale, the payment is made in lumpsum, i.e. one-shot payment either in cash or via cheque or online modes. As against, hire purchase, payment is made in instalments.

6. In the sale, the consideration covers the price of the goods purchased. Conversely, in hire purchase, the consideration includes the hire charges for the use of the asset, along with the price of the asset.

7. On the non-payment of the amount due, in case of a sale, the seller can only take legal action against the buyer but cannot take back the goods. However, in hire purchase, the hire vendor can repossess the goods, when the hire purchaser defaults in payment.

8. In the case of the sale of goods, the buyer cannot terminate the contract, and he/she is obligated to pay the price. On the flip side, the hire purchaser can terminate the contract by returning the asset to the vendor and has no liability to pay the instalments in full.

9. In the case of a hire purchase, the hire vendor does not have to bear the risk of loss due to the insolvency of the hire purchaser because the hire vendor can simply repossess the goods. As opposed, in case of a sale, the seller of the goods has to bear the loss due to insolvency.

10. When it comes to repairing, the hire vendor has to bear the expenses of repair in case of hire purchase. Contrastingly, in a sale contract, the buyer of the goods bears any expenses related to the repair of the goods, once the goods are sold.

11. In case of a sale, the buyer becomes the ultimate owner of the goods, and so the buyer can transfer a good title to the third party. On the other hand, in the case of a hire purchase, as only the possession of the asset changes and not the ownership, the hire purchaser cannot transfer a good title to the third party.