Installment System, Meaning, Features

19/09/2022 0 By indiafreenotes

The monthly or period payment in installment purchase is termed an installment whereas, in hire purchase arrangement, it is called hire charges. Installment derives its value from the length of time, the sale value of an asset, and the interest rate. In contrast, the hire charges are a function of two additional factors, viz. option of termination and repairs and maintenance. Ideally, the installment should be less than the hire charges for the same asset. Therefore, hire purchase is an expensive system compared to installment purchase.


  • The buyer makes the payment in different installment over a period of time as agrees upon in the agreement.
  • Installment purchase system is just like an outright credit sale of goods.
  • Under installment purchase system, the buyer gets the immediate possession as well as the ownership of goods.
  • The seller cannot responses the good if the buyer made default in the payment of installment but he/she can sue against the buyer for the recovery of amount due.
  • In case of default in the payment of installment, the total amount of installments already paid by the buyer cannot be forfeited.
  • Risk of goods/assets are to be borne by the buyer just after signing the agreement.
  • Under installment system, the buyer can sell or mortgage the goods even before clearing all the installments.
  • The buyer of the goods under installment purchase system has no right to return the goods to the seller.

Risk, Repair, and Maintenance related to Asset

In hire purchase, all the risks are borne by the financing company until the hirer’s last payment because it is the official owner of the asset till that time. In installment purchases, the risks are borne by the buyer from day one. Similarly, repair and maintenance is the headache of the financier in the case of hire purchase and the buyer in case of an installment purchase.

Right to Sell or Transfer

The owner of the assets always exercises the right to sell or transfer. In the case of hire purchase, this right lies with the financing company or seller as the case may be because they are the owners of the asset. In the case of an installment purchase, it is with the buyer because he becomes the owner on the day he signs the agreement.

The default of Installment/Hire Charges

When a hirer defaults in the payment of hire charges, the financier has the right to forfeit the money paid till that date and take back possession of the goods. Whereas in installment purchase, the installment paid are not forfeited, and the financier is liable to receive the remaining dues.