Difference between Sales and Hire Purchase

Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between sale and hire purchase.

Sale Hire Purchase
A ‘sale’ is governed by the sale of Goods Act Hire purchase is governed by the Hire Purchase Act
In case of sale, the ownership of the goods is transferred to the buyer immediately In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments
In case of sale, the buyer makes payment in lumpsum. (If the lumpsum payment is made immediately on transfer of ownership and possession of goods, it is called Cash Sale and if the payment is made on a specified future date, it is called credit sale In case of hire purchase, the payment is made in installments.
The buyer pays only for the price of goods The hire purchaser pays for the price of goods and also some amount of interest.
On non-payment of the consideration the seller cannot take back the goods, but can only take legal action on buyer. On non-payment of any installment, the seller can re-possess the goods.
Once a sale has taken place, neither the seller, nor the buyer can Either the buyer or the seller can terminate the contract at any point of time, until the payments of last installment.
When the buyer becomes insolvent, the seller has to undertake the risk of loss. When the hire purchaser becomes insolvent, the seller can reposes the goods, and hence need not undertake the risk of loss.
A sale is subject to levy of sales tax at the time of contract of sale. In this case, the assets tax will be levied at the time of ownership (I.e on payment of last instalment)



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