(a) Differentiate between Hire… | Commerce

Question 1 Report

(a) Differentiate between Hire Purchase and Credit Sale

(b) Give four advantages of hire purchase to each of following:
(i) a seller
(ii) a buyer

Answer

Answer Details

(a) Difference between Hire Purchase and Credit Sale

Hire Purchase	Credit Sale
Ownership of the goods remains with the seller until the buyer pays the last instalment.	Ownership of the goods passes to the buyer at once, at the time of sale.
The buyer only hires the goods and becomes owner after full payment.	The buyer becomes the owner immediately, though payment is made later.
The seller can repossess (take back) the goods if the buyer defaults.	The seller cannot repossess the goods; he can only sue for the debt owed.
A deposit is paid and the balance is spread over instalments.	Payment may be in one later sum or by instalments, but ownership has already passed.

(b) Four advantages of hire purchase

(i) To a seller

It increases sales because customers who cannot pay in full at once are still able to buy.
He earns extra income, since the total hire-purchase price includes interest and is higher than the cash price.
The goods remain his property until fully paid, so he can repossess them if the buyer fails to pay, reducing his risk.
It helps him to attract and retain more customers and dispose of stock quickly.

(ii) To a buyer

He can obtain and use goods immediately without paying the full price at once.
He pays gradually in convenient instalments out of his income, easing the burden.
He can acquire expensive items such as machinery or vehicles that he could not afford to buy outright.
The use of the goods (for example a machine or vehicle) can help him earn the money used to pay the instalments.

(a) Differentiate between Hire Purchase and Credit Sale (b) Give four advantages of hire purchase to each of following: (i) a seller (ii) a buyer