Meaning of Hire Purchase, Leasing and key differences are:
1. Ownership
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In leasing ownership is never transfer to the lessee even after the payment of last lease rentals. But in hire purchase, after the payment of last installment ownership is transferred to the buyer of the goods.
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2. Repayment amount
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Generally in lease, repayment is called lease rentals and that in case of hire purchase is called installments.
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3. Advantage of tax
deductibility
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In lease financing lease rentals are tax deductible expenses. However, in hire purchase arrangement only the amount of interest is tax deductible not the full installment.
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4. Depreciation
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Lessee cannot claim depreciation as he is not the owner of the asset. In hire purchase the buyer can have the claim of depreciation with other expenses.
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5. Realization of
salvage value
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Lessee cannot realize salvage value of the leased asset after the end of the lease contract. The hirer can claim salvage value.
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6. Magnitude of funds
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In leasing, magnitude of funds involved is very large because these contracts are generally for capital goods such as plant and machinery, ships, among others. In the case of hire purchase, the magnitude of funds involved is low. Generally, these contracts are for the purchase of office equipments, automobiles, furniture among others.
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