Difference Between Hire Purchasing and Leasing
Hire Purchase:- a hire purchase agreement, the purchaser initiates the acquisition of costly items by making an initial deposit and then settling the remaining amount, along with interest, through a series of installments.
Leasing:- A lease is an agreement that defines the conditions wherein one party commits to renting an asset, such as property, owned by another party.
- Ownership Transfer: In a hire purchase arrangement, the buyer aims to assume asset ownership after completing all installment payments. Initially, a deposit is made, followed by regular installments over a fixed period. Complete ownership is transferred upon the final price, including any additional charges.
- Usage Rights: While the purchaser possesses and uses the asset from the start, legal ownership remains with the seller until the final payment is fulfilled.
- Responsibilities: Throughout the hire purchase period, the purchaser is accountable for maintaining and insuring the asset.
- Flexibility: There’s potential for more flexibility regarding ownership transfer and modifications to the asset upon meeting all payment obligations.
- Ownership Status: In leasing, the lessor (owner of the asset) retains ownership throughout the lease duration. The lessee (individual or entity leasing the asset) makes periodic payments to use the help.
- Usage Rights: Although the lessee has the right to use the asset, ownership typically remains with the lessor even after the lease term concludes.
- Responsibilities: Depending on the leasing agreement, the lessor might retain responsibility for maintaining and insuring the asset.
- Flexibility: Leasing offers flexibility in using the asset for a defined period without the burden of ownership. At the lease term’s end, the lessee might have options to return the investment, extend the lease, or purchase the asset at an agreed-upon price.
Both methods offer advantages and drawbacks, depending on the specific requirements and circumstances of individuals or businesses seeking asset acquisition.
For further reading you may go through following article of RBI’s Monetary Magic: Transforming India’s Financial Services Landscape