Reference no: EM131012199

Question:

Mr Moyo needs a television set and buys one from tendai at her garage sale. although tEndai know the TV is 5 years old and does not function properly, she tells Mr moyo that it is practically new and performs excellently.mr moyo pays for the cost of the tv set and discovers after a few days that Elizabeth lied. Advise him on his legal position Hire Purchase System: it's Advantages and Disadvantages!

Under hire purchase system, the purchaser gets the possession of the goods without paying the full price for them.

He makes the part payment at the time of purchase and the balance is paid in easy installments periodically. The important ingredient of this system is that the buyer becomes the owner of the goods only after full and final payment of all the installments, till then he hires the goods and every installment is treated as hiring charges paid by him.

If the purchaser makes default in the payment of an installment, the seller can take back the possession of the goods. Some of the important definitions of hire purchase system are given here:

"Hire Purchase System is a system under which money is paid for goods by means of periodical installments with the view of ultimate purchase. All money being paid in the mean time is regarded as payment of hire and the goods become the property of the buyers only when all the installments have been paid. "-- Carter

"The hire-purchase is a form of trade in which credit is granted to the customer on the security of a lien on the goods." -J. Stephenson

From the above mentioned definitions it is clear that the buyer takes the delivery of the article on the payment of first installment and becomes the owner only after paying the final instalment. Hire purchase type of business is usually carried in the case of durable consumer articles like sewing machines, televisions, desert coolers and refrigerators etc.
Advantages of Hire Purchase System:

(1) Convenience in Payment:

The buyer is greatly benefited as he has to make the payment in installments. This system is greatly advantageous to the people having limited income.

(2) Increased Volume Of Sales:

This system attracts more customers as the payment is to be made in easy installments. This leads to increased volume of sales.

(3) Increased Profits:

Large volume of sales ensures increased profits to the seller.

(4) Encourages Savings:

It encourages thrift among the buyers who are forced to save some portion of their income for the payment of the installments. This inculcates the habit to save among the people.

(5) Helpful For Small Traders:

This system is a blessing for the small manufacturers and traders. They can purchase machinery and other equipment on installment basis and in turn sell to the buyer charging full price.

(6) Earning Of Interest:

The seller gets the installment which includes original price and interest. The interest is calculated in advance and added in total installments to be paid by the buyer.

(7) Lesser Risk:

From the point of view of seller this system is greatly beneficial as he knows that if the buyer fails to pay one installment, he can get the article back.

Disadvantages of Hire Purchase System:

(1) Higher Price:

A buyer has to pay higher price for the article purchased which includes cost plus interest. The rate of interest is quite high.

(2) Artificial Demand:

Hire purchase system creates artificial demand for the product. The buyer is tempted to purchase the products, even if he does not need or afford to buy the product.

(3) Heavy Risk:

The seller runs a heavy risk under such system, though he has the right to take back the articles from the defaulting customers. The second hand goods fetch little price.

(4) Difficulties in Recovery of Installments:

It has been observed that the sellers do not get the installments from the purchasers on time. They may choose wrong buyers which may put them in trouble. They have to waste time and incur extra expenditure for the recovery of the installments. This sometimes led to serious conflicts between the buyers and the sellers.

(5) Break Up Of Families:

The system puts a great financial burden on the families which cannot afford to buy costly and luxurious items. Recent studies in western countries have revealed that thousands of happy homes and families have been broken by hire purchase buying's.