Special terminologies in Hire Purchase Accounts Hire Vendor, Hire Purchaser, Down Payment, Principal Component, Interest Component30th March 2021
The hire vendor delivers the goods or asset to the hire purchaser at the time of agreement i.e., after singing agreement.
The hire purchaser has the right to use the goods delivered to him by the hire vendor under hire purchase system.
Down Payment is the amount paid by the hirer to the hire vendor at the time of signing the agreement or at the time of taking delivery of the goods by the hirer from hire vendor.
The total sum payable by the hirer under a hire purchase agreement by way of a deposit or initial payment (called, down payment) and subsequent periodical instalments. Usually, the purchase price under hire purchase system (called, hire purchase price) is higher than the purchase price if the same goods had been purchased on cash basis (called, cash price).
That means, Hire Purchase Price > Cash (Purchase) Price. Hire purchase price is also called, net hire purchase price. If the hire purchase price includes the charges for (a) delivery expenses
(b) Registration fee
(c) Insurance premium, etc., they should be subtracted to arrive at the net hire purchase price.
Principal Component, Interest Component
As the hire purchase price comprises both cash price and interest, the amount of each instalment includes a part towards cash price (i.e., principal amount) and another part towards interest for a particular period (on the outstanding balance).
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