Differences and similarities between hire purchase and deferred payment - SS2 Commerce Lesson Note

Differences between Hire Purchase and Deferred Payment:

Meaning:

Hire Purchase: In hire purchase, the buyer acquires an asset by making regular installment payments over a specific period. The buyer possesses and uses the asset during the hire purchase period but does not own it until the final payment is made.

Deferred Payment: Deferred payment refers to a buying arrangement where the buyer makes a purchase but delays the payment for a specified period. The buyer takes immediate possession of the goods or services and agrees to make the payment at a later date.

Ownership:

Hire Purchase: The legal ownership of the asset remains with the seller until the final payment is made. The buyer gains full ownership of the asset after completing all payments.

Deferred Payment: The buyer immediately possesses and owns the goods or services, but defers the payment to a later date.

Payment Structure:

Hire Purchase: In hire purchase, the cost of the asset is divided into regular installments that the buyer pays over the hire purchase period, usually monthly.

Deferred Payment: Deferred payment allows the buyer to make a purchase without making any immediate payment. Instead, the buyer agrees to pay the full amount after a specified period.

Similarities between Hire Purchase and Deferred Payment:

Delayed Payment:

Both hire purchase and deferred payment involve delaying the payment for a purchase. In both cases, the buyer does not make the full payment upfront.

Possession of Goods:

In both hire purchase and deferred payment, the buyer takes possession of the goods or services immediately. The buyer can use and enjoy the benefits of the purchase from the outset.

Agreement:

Both hire purchase and deferred payment require a formal agreement between the buyer and the seller. The terms and conditions, including the payment schedule and any interest or charges, are agreed upon and documented.