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Difference between Hire Purchase and Leasing

There are many things that we aspire for. Electronic gadgets are one of them. We wish to buy expensive things like homes, cars, smart phones, headsets, etc., to enjoy its benefits. Now, these electronic items and houses are very expensive. Some people can afford it, while some cannot. People who can afford it make direct payments to the seller. But there are several options of payment for the ones who cannot afford it at the present moment. One of the options is EMI. For instance, in order to buy an expensive smartphone one can make a down payment that is less than 50% of the actual cost. The rest of the money is provided to the seller on a monthly basis. Nowadays, EMIs come with 0% interest, i.e., one does not have to pay the interest rate on an expensive item. EMI is one of the options available to people.

Now, let us talk about the other options of buying as well. There are two significant types of making transactions and purchasing things, i.e., hire purchasing, and leasing. Both are different in several aspects, but let us start with the meanings of these terms.

Hire Purchase

Hire purchase is defined as the transaction wherein the products are bought and sold on several terms like the payment will be made in installments, the goods bought will readily be given to the buyer, the ownership of the product remains with the seller until the last installment is paid, and every installment is treated as a hire rate till the payment of the last installment. Hire purchase is undertaken when the buyer cannot afford to pay the entire amount of a product. A percentage of an amount is kept as a deposit, and the monthly rent is paid for the product hired. Once the installments are complete, the ownership of the product is given to the buyer. Well, there are two significant kinds of hire purchase, i.e., customer hire-purchase and industrial hire purchase. In the consumer hire purchase, the purchaser hires the products for non-business purposes (personal uses). A seller is a person and not a company or a business. On the other hand, in industrial hire purchase, the seller is a company or an industry that allows the buyer to hire the products for business purposes. For instance, hiring machines for a factory is an example of industrial hire purchase.

Leasing

A lease is defined as a legal/ contractual agreement wherein the lessee pays the lessor to use a particular product. Assets like houses, properties, buildings, etc., come under the contractual agreement of leasing. Apart from the buildings, mechanical equipments are also leased. Leasing can basically be defined as the contract between a lessee and a lessor wherein the lessee agrees to rent a product, property, or equipment owned by the lessor. The payment is made by the lessee in a specific time period. There is no extension in the time period for the payment of particular equipment or property. One of the common examples of the lease is when a tenant rents your property for a specific period of time. Lessee is the receiver of goods and services, and the lessor is the owner of the product. One of the features of leasing is that the lessee selects the product/ property/ equipment from the lessor, and the lessee uses the asset during the lease.

Now, there are certain differences between hire purchasing and leasing. So, let us have a look at them.

S.NO.	HIRE PURCHASE	LEASING
1.	Hire purchase is defined as the transaction wherein the products are sold on several basic terms.	On the other hand, leasing is defined as the legal agreement wherein the lessee pays the lessor to use a particular asset.
2.	Hire purchase has terms like the payment has to be made in installments, the product has to be readily provided to the buyer, etc.	Leasing is a contract mentioning the specific time period for which the property/ equipment has been leased.
3.	The money is provided on a monthly basis.	The payment is made in a specific time period within which the asset is used.
4.	There are two significant kinds of hire purchase, i.e., consumer hire purchase and industrial hire purchase.	There are different types of leases. They are: Financial Lease Sales Aid Lease Operating Lease Specialized Service Lease Cross Border Lease Small Ticket & Big Ticket Lease
5.	There is no specific accounting standard in hire purchase.	The accounting standard is AS-19 in leasing.
6.	A down payment is required in hire purchasing.	There is no down payment required in leasing.
7.	The installments are provided in principal plus interest format.	The installments are provided on the basis of the cost of using an asset.
8.	The ownership of the product is transferred from the seller to the purchaser once the last installment is paid.	The transfer of ownership depends upon the type of lease one is taking.
9.	The repairing and maintenance of the product/ good depend upon the buyer.	The repairing and maintenance of a product/ good depend upon the lease type.
10.	Initial payment along with installment is provided in hire purchase.	The lease rentals are provided in leasing.
11.	Hire purchasing is of short-term duration.	Leasing is of a longer duration.
12.	Examples: Cars Truck Lorry Smart Phone	Examples: Land Property Building Equipment

So, these are some of the significant contrasting points between hire purchase and leasing. Now, there are certain characteristics of hire purchase and leasing. So, let us have a look at them.

Characteristics of Hire Purchase

1. The payment is made by the buyer to the seller, who might be a person, business, or company.
2. The installments have to be provided within a specific time frame.
3. The possession of goods is immediately given to the buyer.
4. The ownership of the product remains with the seller until the last installment is paid.
5. The vendor can take back the products in case the payment is not made on time.
6. The installments include the principal amount along with interest.

Characteristics of Leasing

1. There are two parties in the contractual agreement, i.e., the lessee and the lessor.
2. The time duration of the lease cannot be canceled.
3. The payment is made to the lessor in response to the lease rentals.
4. The ownership of a particular property is with the lessor, and the use of the product is allowed to the lessee.
5. After the time period ends, the lease can be renewed.
6. In order to transfer the ownership, the lessee has to make payment for the property/ equipment.

So, these are some of the characteristics of hire purchase and leasing. Hire purchase and leasing are essential if one wants to buy or rent something. Thus, both hire purchase and leasing are significant aspects of buying and selling.

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