Difference between Deferred Instalment Method and Hire-Purchase Method and Modes of Payment

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Difference between Deferred Instalment Method and Hire-Purchase Method

Difference between Deferred Instalment Method and Hire-Purchase Method
Difference between Deferred Instalment Method and Hire-Purchase Method

Deferred Instalment Method

Hire-Purchase Method

It is essentially a contract for sale

It is essentially a contract for hiring of goods.

The ownership rights pass to the buyer immediately at the time when the agreement is entered into.

The ownership rights remain with the seller and the customer exercises his option for purchasing the goods.

The buyer can return the goods at any stage. The seller can also take back the goods in case of non-payment.

In case of default in payment the seller can sue the buyer for balance instalments.

Modes of Payment

In the sale, the buyer makes an offer to purchase goods for a price and the seller accepts the offer; or the seller makes an offer to sell goods for a price and the buyer accepts the offer. Now the payment for the goods may be immediate or deferred. Deferred payment can be instalment payment or full payment at the end of the agreed credit period.

Image of Modes of Payment

Image of Modes of Payment

Immediate Payment

In case of immediate payment, the buyer makes full payment to the seller in cash. This is the normal practice in retail buying and selling that involves small payment. For example, sale of goods for daily use like grocery, vegetables, readymade garments, low priced consumer durable goods, etc. are made on immediate cash payment.

Deferred Instalment Plan

Mostly known as ‘buy now – pay later’ plan, under this method the buyer pays a nominal amount to the seller at the time of purchase and takes possession of the goods. The balance is paid by him in instalments over a period of time. The instalment is a fixed amount payable monthly or quarterly to the seller and the total payment is equal to the unpaid amount and the interest charged on it. The interest charged on the unpaid amount normally reduces with payment of instalments. Sometimes, the seller can offer interest free instalments. If the buyer fails to pay any instalment, the seller can sue him for the unpaid amount This method of sale is usually found in the case of goods which are less durable and have more chances of wear and tear.

Deferred Payment at the End of Credit Period

When goods are sold on credit, payment is required to be made by the buyer at the end of the agreed period of credit (say) three months. If payment is made by him earlier, the seller allows a special discount which is indicated in the invoice as the net amount payable on prompt payment before due date.

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