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finance financial lease or hire purchase (Financial Leases and Hire Purchase In some countries, a distinction is made between lease and hire-purchase transac- tions. A hire-purchase transaction is usually defined as one where the hirer (user) has, at the end of the fixed term of hire, an option to buy the asset at a token value. In other words, financial leases with a bargain buyout option at the end of the term can be called a hire-purchase transaction. Hire-purchase is decisively a financial lease transaction, but in some cases it is neces- sary to provide the cancellation option in hire-purchase transactions by statute.That is, the hirer has to be provided with the option of returning the asset and walking away from the deal. If such an option is embedded, hire-purchase becomes significant- ly different from a financial lease as the risk of obsolescence gets shifted to the hire- vendor. Under these circumstances, if the asset were to become obsolete during the hire term, the hirer may off-hire the asset and close the contract, leaving the owner (the lessor) with less than a full payout from the lease. Hire-purchase is of British origin–the device originated long before leases became popular–and spread to countries that were then British dominions. The device is still popular in Australia, Britain, India, New Zealand, Pakistan, and in several African countries. Most of these countries have enacted, in line with the United Kingdom, specific laws addressing hire-purchase transactions. Moonranger) |
