hire purchase
Image Source: https://bit.ly/2wgQtOY

This article has been written by Rutuparna Sahu from KIIT School of Law, Odisha. This article is an analysis of the hire purchase agreement.


Hire purchase agreements are the kind of agreements whereby the owner of goods allows a person (the hirer) to hire goods from him for a specific period of time by paying instalments. Here, the hirer has the option to buy the goods at the end of the contract if all the instalments are paid respectively. Most of us get into the dilemma of whether this is a contract of sale.

Hire purchase agreement is not a contract of sale but a contract of bailment as the hirer hardly has the option to buy the goods and it is a notable fact that although the hirer has the right of using the goods, he is not the legal owner while the term of the agreement is functioning. In India, all the hire purchase finance organisations are controlled by the Hire Purchase Act, 1972. However, a Bill was initiated in the year 1989 for making certain amendments which could never come into force.

Download Now

Such a transaction has two basic elements which are governed by the Indian Contract Act, 1872 and Sale of Goods Act, 193:

  1. Bailment- This aspect of the hire purchase agreement is governed by Chapter IX of the Indian Contract Act which covers finance agreements like the purchase of consumer durables such as motor vehicles, computers, household appliances like televisions, refrigerator. 
  2. Sale- This aspect of the hire purchase agreement is a part of the Sale of Goods Act. The law commission had recommended in its eighth report of Sale of Goods Act that there should be a separate enactment regulating hire-purchase transaction. As there were no proper laws to regulate such transactions of hire purchase hence provisions were made by a separate act called the Hire Purchase Act 1972.  

Features of Hire Purchase Agreement

  • One should be cautious while selecting the asset and enquire about the rightful owner of that assets because it may so happen that the goods are hired and later on, it is found that the vendor is not entitled to those goods.
  • Keeping a check on the cumulative instalment amount is very necessary to make sure that it should not exceed the actual value of assets.
  • It is also required that the hirer should possess the copy of the hire purchase agreement.
  • Hire purchase agreement is such that it can be changed as per the convenience with the consent of both the parties i.e. the hirer and the hiree just like any other agreement.
  • The hirer should make sure that the agreement mentions the hire charges and other terms of payment and their consequences in the manner he understands and interprets and the terms are favourable as far as possible and agreeable.
  • There should be transparency and the agreements should have clarity of terms that are mutually agreeable by the parties.
  • This mode is generally used for cars and high-value electrical goods where the buyers are not able to pay for the goods directly.
  • Generally, If we compare buying something with a hire purchase agreement with buying something outright, the former would cost you more.
  • In a hire purchase agreement ownership is transferred to the purchaser after the full payment of the particular article.

Working of a Hire Purchase Agreement 

A hire purchase agreement is somewhat similar to the concept of rent-to-own transactions which gives the purchaser a fair chance to buy the article whenever it is feasible to him while the agreement is in force. Likewise, hire purchase gives a benefit to the purchaser by providing them with fewer credits by diverting the cost of expensive articles which they otherwise could not have afforded over a time period. However, the purchaser is not eligible to be the owner of the article unless he has paid the full amount of the article, which means it is no way related to the extension of credit. 

And as in Hire Purchase, the ownership is not transferred initially as the articles that they hire are protected by the vendor because the full payment is not yet done. The vendor must have the assurance that the article would be kept in good condition until the full payment is received. So it is one of the secured ways of transaction.


Click Here

How Hire Purchase is different from Installment Sale?

  • Unlike in the instalment sale, where the buyer becomes the owner of the property immediately as the contract is signed by both the parties but in case of a hire purchase agreement, the hire purchase is eligible to be the owner only after the payment of all the required instalments to the hire vendor.
  • Installment is a contract of sale. Here the buyer has all rights to dispose of the property as he wants, but in a hire purchase agreement, the hire-purchaser and hire-vendor are related to each other as a bailee and a bailor which does not allow the hire-purchaser to dispose of a property in any manner.  
  • As in case of instalments, the buyer becomes the owner immediately after signing the contract. So, any loss to the goods will be compensated by the buyer himself but in case of a hire purchase agreement, the hire-purchaser is not bound to compensate for the losses to the goods (if any) if was taken care of with due diligence as the hire-purchaser is not yet the absolute owner.
  • In case of default in payment of instalments the seller is only entitled to sue the buyer for the unpaid amount of installment and has no right to repossess the property. But in case of default in payment of installment by the hire-purchaser in a hire purchase agreement, the hire-vendor has a right to repossess the property. 
  • In case of an installment, a buyer cannot terminate the contract and is liable to pay all the instalments. But in case of a hire purchase agreement, the hire-purchaser can terminate the contract if he wishes to and can return the goods but is not entitled to pay the remaining instalments.

Parties to a Hire Purchase Agreement

In the hire purchase agreement, the contract is basically between two parties viz. the hire-purchaser and the hire-vendor and sometimes there is an involvement of a third party that is the financer. 

Duties of the Hire-vendor (owner)

  • The hire-vendor has to deliver the goods in due time as required and should make sure that the goods delivered are in good condition.
  • It is the duty of the owner to ensure that the goods are true to the description in accordance with the buyer’s preferences. Also, the goods should match the expected description. 
  • The owner must have a title to the goods that are to be contracted for the hire purchase.
  • The hire-vendor and the hire-purchase both the parties are required to render the basic information required such as the dates of the transaction and a reminder for the payment of the remaining amount.
  • The goods for hiring must be of merchantable quality and should satisfy all the criteria required to fit into the purpose for which they were hired. Moreover, the property should be free from encumbrances. If at all there is any kind of defect in the property, it should be of a minor one which is noticeable. For example in the case of Anoka vs. SCOA Warri, the hirer returned the bike of the vendor because of some defect in the engine. The court in this matter held that the implied term of fitness for the purpose would not be applicable in this case because the defect is a major one which cannot be noticed easily.
  • The hirer has the right to quiet the possession anytime he wishes to but besides that, it is the duty of the vendor not to interrupt the hirer in any way while possessing the good.

Duties of a hirer

  • It is the hirer’s duty to be present while receiving or accepting the goods delivered by the owner and if in case he fails to do so he can be sued for non-acceptance of the goods.
  • No doubt the hirer has a right to use the property as if it was his own but with a condition that he must take care of the property with due diligence. 
  • If in case, the hire purchase agreement ceases to be valid, the hirer is obligated to redeliver the goods to the owner in exactly the same condition as it was received. 
  • The hirer is bound to pay all the instalments required when it is due. In the case of Animashawun vs. CFAO, the hirer was in default of payment of the instalments and as a result, the owner repossessed the goods. The court’s decision was in favour of the owner and held that the owner has all the rights to repossess the goods on default of the remaining instalments. 
  • Mere hiring a good does not give a hirer the right to dispose of the goods delivered by the owner and this stays uninterrupted unless the full payment is done. 
  • It is the duty of the hirer to not act inconsistent to anything relating to the goods nor to the owner’s right over the good and this stays uninterrupted unless the full payment is done. 

Contents of hire-purchase agreements under Section 4 of the Hire-Purchase Act 

Every hire-purchase agreement needs to state the followings –

  • The price of the goods to be hired as agreed by the parties. 
  • The said cash price of the goods, at which the goods are to be purchased by the hirer for cash.
  • The exact date on which the agreement shall be deemed to have taken place.
  • The number of instalments required to pay the hire purchase price, the amount for each of the instalments, with the date upon which the instalments are to be paid, the person to whom the instalments are to be paid and the proper place where the transaction needs to be done.
  • About the goods that are to be hired in such a manner that it can be identified by the hirer.

Major demerits of a Hire-Purchase Agreement

  • If we go through the real-life scenario this method of the transaction would cost you more than the usual buying option.
  • Hiring never comes with absolute ownership because the vendor can repossess the goods on the failure of payment of instalments.
  • The duration of most of the hire purchase schemes is very long and stringent. 
  • The hire purchase schemes are never free of cost. You have to pay a certain amount initially, which is usually very high, with the amount of instalments agreed.
  • Even if you are insured for the particular good and the product incurs damages, you cannot claim for the insurance money unless you own the property. And the cost of damage automatically gets added to the remaining instalment money that is to be paid.

Latest scandals regarding the hire purchase agreement 

  • Errors in credit and loan agreements are the latest scandals to disturb the banking sector. According to the latest disclosure by HSBC (Hong Kong and Shanghai banking corporation), a huge number of consumers are to be refunded for mistakes in paperwork relating to the agreements. 
  • Besides that, some of the reports by many Britain banks and building societies say that annual statements, arrears notices and other correspondence held by consumers could not comply with the Consumer Credit Act because of lack of information provided to the consumer which they are entitled to have the knowledge.  


According to the above research, we can conclude that the concept of hire purchase agreement is the best way to hire any article which is generally expensive to afford and at the end, you can even purchase it if you are able to. But as a matter of fact, it costs you more because the instalment money is generally added with interests and outstandings of the particular article. 


LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.


Please enter your comment!
Please enter your name here