A Hire Purchase (HP) contract in banking involves three parties: the financier (seller), the hirer (buyer), and the supplier (dealer or manufacturer). Each party has a specific role and responsibility in the HP transaction.
- Financier: The financier is the party that provides the funds to purchase the asset, and retains ownership of the asset until the final installment is paid. The financier is responsible for drafting the HP agreement, which outlines the terms and conditions of the transaction, including the amount of the installment payments, the duration of the contract, and the interest rate charged on the outstanding balance.
- Hirer: The hirer is the party that uses the asset and pays for it in installments over a specified period of time. The hirer is responsible for making the installment payments on time, and for maintaining the asset in good condition. The hirer may have the option to purchase the asset at the end of the contract term, by paying the residual value or a balloon payment.
- Supplier: The supplier is the party that sells the asset to the hirer and provides the necessary documentation, such as the invoice and delivery note. The supplier may be a dealer or a manufacturer, and may work directly with the financier or indirectly through a broker or intermediary.
The three parties involved in an HP contract may have different motivations for entering into the transaction. The financier seeks to earn a profit on the interest charged on the installment payments, while the hirer seeks to acquire an asset without making a large upfront payment. The supplier benefits from increased sales and revenue, as well as a potentially higher price for the asset due to the availability of financing.
Overall, the HP contract is a legally binding agreement that governs the rights and obligations of the three parties involved in the transaction, and provides a mechanism for the hirer to acquire the use of an asset without having to pay the full purchase price upfront.