What are the advantages and disadvantages of lease contract and hire purchase contract?

Answer 1

A lease transaction is a commercial arrangement whereby an equipment owner or Manufacturer conveys to the equipment user the right to use the equipment in return for a rental. In other words, lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset during a specified period in return for a mutually agreed periodic payment (the lease rentals). The important feature of a lease contract is separation of the ownership of the asset from its usage. Lease financing is based on the observation made by Donald B. Grant: "Why own a cow when the milk is so cheap? All you really need is milk and not the cow." Hire purchase is a type of instalment credit under which the hire purchaser, called the hirer, agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as interest, with an option to purchase. Under this transaction, the hire purchaser acquires the property (goods) immediately on signing the hire purchase agreement but the ownership or title of the same is transferred only when the last instalment is paid. The hire purchase system is regulated by the Hire Purchase Act 1972. This Act defines a hire purchase as "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: 1) The owner delivers possession of goods thereof to a person on condition that such person pays the agreed amount in periodic instalments 2) The property in the goods is to pass to such person on the payment of the last of such instalments, and 3) Such person has a right to terminate the agreement at any time before the property so passes". Hire purchase should be distinguished from instalment sale wherein property passes to the purchaser with the payment of the first instalment. But in case of HP (ownership remains with the seller until the last instalment is paid) buyer gets ownership after paying the last instalment. HP also differs form leasing. Meaning A lease transaction is a commercial arrangement, whereby an equipment owner or manufacturer conveys to the equipment user the right to use the equipment in return for a rental. while Hire purchase is a type of instalment credit under which the hire purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as interest, with an option to purchase. In lease financing no option is provided to the lessee (user) to purchase the goods. Where by in Hire purchase option is provided to the hirer (user). Lease rentals paid by the lessee are entirely revenue expenditure of the lessee. While in case of higher purchase only interest element included in the HP instalments is revenue expenditure by nature. Components Lease rentals comprise of 2 elements (1) finance charge and (2) capital recovery. HP instalments comprise of 3 elements (1) normal trading profit (2) finance charge and (3) recovery of cost of goods/assets.

Answer 2

Lease contracts can vary themselves. There are differences between lease purchase contracts and lease option. A hire purchase is just the legal term for a contract that is developed in the UK. There is quite a lot of information about the difference between the two of them. The best thing you can do is go to http://www.leasepurchasemadeeasy.com/lease-purchase-agreement.html and read the differences between the contracts. There is a lot of info there that can help you. Hope it helps.

Answer 3

ANSWER

1. hire purchase (HP)

is an agreement of hire, whereas credit sales is an agreement of sale.
2. ownership of goods is transferred from hire vendor to hire purchaser only when the last installment is paid, but in sales, ownership is transferred immediately to the buyer.
3. price is paid by the hire purchaser through installment which is treated as hire, but in sales price is paid in lump

sum or according to the agreement of sale.
4. the hire vendor can repossess the goods on default. but in sales the seller cannot take back the goods, whatever is the case.

Answer 4

At the end of a lease contract you walk away with nothing. In a hire purchase contract, if you keep the item for the appropriate length of time, you get the item. A lease is going to be less out of pocket, but there is no residual value for you.