Hire purchase system is a kind of retailing under which goods are sold on conditional basis. The goods are delivered to the customers at the time of purchase after down payment.
The buyer is required to pay the price in installments. The goods are treated on hire and their ownership remains with the owner until the final installment is paid.
In case the buyer fails to pay installments, the seller has the right to take back the goods. The buyer cannot sell the goods before all the installments are paid. According to James Stephenson, “the hire purchase is a form of trade in which credit is granted to the buyer on the security of a lien on the goods.”
Hire purchase system is different from installment system or deferred payment system. Under installment system, the buyer becomes the owner of goods and takes possession of goods at the time of first installment.
He makes payment in installments at regular intervals. In case of default in payment, the seller cannot take back the goods. He can only file a suit for recovery of unpaid installments. The buyer can sell the goods even before paying all the installments.
Hire purchase system is suitable for selling costly products for which the buyer cannot make the total payment at once. Goods must be durable, of standard quality and their demand should be stable’. The article should be such that, if necessary, they can be easily taken back and resold.