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Hire purchase

Meaning: 

Hire Purchase (HP) is defined as a financial method of acquiring goods through installment payments, wherein the buyer receives the product upfront, but ownership is
transferred only upon completion of all payment installments. In simple terms, hire purchase allows consumers to hire the product now, pay gradually, and ultimately become the owner after full payment.


Example:
For example, if a business acquires a piece of machinery through hire purchase, it   begins using the machine immediately while making regular payments until it fully owns the asset.

How to understand Hire Purchase:

Hire purchase enhances consumer accessibility to expensive items by allowing payments to
be made over time, thus facilitating consumption and production.
It supports businesses in managing cash flow while expanding operations without the immediate financial burden of full payment.


Importance of Hire Purchase:

This method drives credit growth for banks and non-banking financial companies (NBFCs) by enabling purchases that might otherwise be unaffordable.


Types of Hire Purchase:

Consumer Hire Purchase:
Intended for individuals purchasing vehicles and home appliances.
Industrial/Commercial Hire Purchase: 
Designed for companies acquiring machinery, tools, or equipment.

Direct Hire Purchase:
Involves an agreement directly between the buyer and the seller.
Indirect Hire Purchase:
A finance company purchases the asset and hires it to the customer.


How Hire Purchase Is Evolving Evolving:

There is an increasing trend towards digital approval systems facilitated by fintech applications.
Offers with zero down payment and low-interest rates are becoming more popular.
The rise of online e-commerce financing options, like Buy Now Pay Later (BNPL), reflects a similar model to hire purchase.
Documentation processes are becoming faster and more efficient with digital Know Your Customer (KYC) requirements.
Businesses are increasingly utilizing hire purchase for acquiring high-value machines and technology upgrades.
 

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