Are you looking for a long-term investment with low risk? Then hire purchase is one of the best options you can go with. Huge companies require huge plants and machinery for production purposes. Not all companies could afford to buy them in one payment. Therefore, hire purchase or leasing is one the option opted by a lot of companies to reduce the cost of investment.
In Singapore, many companies go with hire purchase or leasing for long term investments in cutting down their cost. Capitall Singapore is one of the options opted by a lot of people. The financial planners of the company target to cut down the price as low as possible. Their aim is to reduce the expenses of the company and meet the long-term financial goals. However, this involves a certain amount of risk but is one of the great options of investment.
What Is Hire Purchase?
Hire purchase is an agreement made between two business parties on a monetary basis. Under this method, a person who is looking to buy machinery hires the machinery on an instalment basis. That is, the hire acquires the machinery from the hiree (vendor), and the payment is made on an instalment basis. The hirer agrees to pay a fixed amount of monthly instalment to the hiree up to a certain period of time with interest. The hiree sets the interest rate based on the total amount of the equipment. The hiree, on failing to receive the payment, has complete rights to take back the equipment from the hirer.
In hire purchase, the hirer doesn’t get the ownership until he makes the complete payment. Until then, the ownership will remain in the hands of the hiree. The hiree has full possession of the equipment until the last installment paid by the hirer to him. On successfully making the last installment, the hirer gets the ownership of the equipment and becomes its owner.
Hire Purchase Agreement
Hire purchase agreement is signed between the hirer and the hiree. The deal is mainly designed to protect the rights of both parties. It stands as a legal proof to avoid malpractices from either of the parties.
- The critical information about the hire purchase agreement must be mentioned explicitly in the contract. The details of the rate of interest, price of the equipment, tenure of agreement, the total number of installments, total amount payable including interest, date of commencement and date of termination of arbitration should be clearly mentioned in the contract.
- The agreement has to be in written format and in the English language.
- All the parties of hire purchase are supposed to sign the agreement. It is compulsory that each and every person involved in the contract sign the agreement.
- The hirer should receive the agreement within seven days (business) of signing the contract.
- Notification must be sent to the hirer stating his right to ask for statements in writing.
Rights Of The Hirer
- The hirer has the right to ask the hiree to provide him the information of the remaining installment amount, additional copy of the agreement, and other details pertaining to the contract.
- The hirer can transfer the agreement to another person and make him the hirer of the contract. The hire purchase agreement can be transferred to another person. But on doing this, the hirer must inform the hiree about the transfer.
- The hirer has the right to make the remaining payment in one shot. If the hirer wants to complete the payment of all his installments in one go, he can do so to acquire the ownership as soon as possible.
- The hirer also has the right to end the contract in midst of its way. He is in the position to return the equipment and terminate the agreement. But on the termination of the deal, the hirer has to pay the amount of compensation decided before the commencement of the contract.
Rights Of The Hiree
- The hiree has the right to take the hirer’s complete personal information since he is giving away his equipment on an installment basis.
- The hiree has the right to know the current location of his equipment. The hirer should inform the hiree where and how the equipment is being used.
- The hiree has the right to receive the installment payments from time to time without any delay. He has the right to question the hirer for the postponement of payment.
- The hiree has the right to repossess the equipment on the non-payment of the installments. If the hiree is not receiving the payments on time, he has the complete freedom to take back his goods from the hirer.
Advantages Of Hire Purchase
- The main advantage of hire purchasing is that you are not required to pay the whole amount in one shot. You can make the payment in installments without investing a considerable amount.
- You can immediately start the use of equipment after acquiring it. In spite of making a partial payment, you can start using the machinery as your own.
- It is an easy way to save the finance of the company by entering into its agreement.
- The rate of interest payable on installment is fixed before the commencement of the contract. This makes it easy for the hirer to decide to sign the agreement. But usually, the rate of interest is feasible and convenient to pay.
- It is one of the best options to budget your annual financial goals. You are not required to pay a single additional penny beside the installments.
Disadvantages Of Hire Purchase
- The main disadvantage of the hire purchase system is, the hirer does not get the ownership of the equipment until and unless he completes the payment of all the installments.
- The hirer must take complete care of the equipment without causing any damage to it since the owner of the equipment is another party.
- On installments, the hirer is supposed to pay an additional amount as interest to the hiree. This amount is paid for years until the complete payment is made.