Hire Purchase System vs Installment Payment System




The hire purchase system is a method of financing the purchase of an asset, where the buyer pays for the asset in installments while using it. The ownership of the asset is transferred to the buyer after the final payment is made.


The purpose of the hire purchase system is to enable the buyer to acquire an asset without making a lump sum payment at the time of purchase.


The interest rate charged on the hire purchase system is usually higher than the prevailing market interest rate because of the risk involved in the transaction.


The ownership of the asset remains with the seller until the final payment is made. The buyer has a right to use the asset as long as the installments are paid.




The installment payment system is a method of paying for an asset over a period of time by making regular payments that include both principal and interest.


The purpose of the installment payment system is to enable the buyer to acquire an asset without making a lump sum payment at the time of purchase.


The interest rate charged on the installment payment system is usually lower than the interest rate charged on the hire purchase system because the risk involved in the transaction is lower.


The ownership of the asset is transferred to the buyer at the time of purchase, although the seller may retain a lien on the asset until the final payment is made.


In conclusion, the main difference between the hire purchase system and the installment payment system is the ownership of the asset. In the hire purchase system, the ownership remains with the seller until the final payment is made, while in the installment payment system, the ownership is transferred to the buyer at the time of purchase. The interest rate charged on the hire purchase system is usually higher than the interest rate charged on the installment payment system because of the risk involved in the transaction.