Hire Purchase

HP or Hire purchase is a legal term. Common man will not be able to understand the legal implications it will be having. This is a term in Contract. What is meant by Hire purchase term is that people mostly agree to pay an amount for the goods mostly in installments like percentage wise. This was started in United Kingdom. Now this practice is followed all over the world. In Japan, Australia, China, New Zealand, India and Malaysia hire purchase is very popular these days.  Hire purchase has also got another name that is Closed End leasing. Hire purchase practice usually arises when a consumer needs to buy something and he is not able to pay the full amount. That is he will not be able to pay the full amount, he agrees to pay in percentage basis. So here comes the importance of hire purchase contract. The Agreement help the person for buying the things after signing the contract, he agrees to pay a certain amount on the terms mentioned in the contract.

So when the entire amount plus the interest has been paid, the person of buyer becomes the absolute owner. In United States and Canada Hire purchase term is also called as Installment plan and also called as Rent to own. The term Mortgage is different form Hire Purchase. If a condition comes where the buyer of the product fails to pay the installments, then the owner or seller can possess the goods. Hire purchase helps the consumer in some ways like; it can help the consumer to buy costly items also by spreading the cost of the item.


For a valid Hire Purchase Contract it must be in a written format and it should be signed by both the parties to the contracts. Certain information has to be clearly stated in the agreement like those mentioned below:

  • The right of the hirer to conclude the contract when he feels like doing so with a valid cause
  • a clear explanation of the merchandise
  • the HP price, i.e., the total amount that must be paid to hire and then purchase the goods
  • the money price for the merchandise
  • a comprehensive statement of the rights of the parties (including the right to cancel the agreement during a "cooling-off" period)
  • the deposit
  • the monthly installments (most states require that the applicable interest rate should be disclosed and the rates and charges that can be applied in HP transactions are regulated)

Hire purchase is a good method for sales promotion also because, if the customers have the option of paying in installments, even if they don’t have ready cash with them they can buy the goods. So Hire purchase accelerates sales promotion.