do not confuse a hire purchase agreement with an extension of credit in an extension of credit the purchaser technically doesn t own the item until all of the payments are made 
special considerationsas noted above hire purchase agreements are used in the u k and are known in the u s but they are known as installment plans although they seem the same there are some distinctions between the two for instance using hire purchase agreements as a type of off balance sheet financing is highly discouraged and not in alignment with generally accepted accounting principles gaap unless the assets and liabilities for leases with terms of 12 months or longer are recognized in the financial statement 3advantages and disadvantages of hire purchase agreementslike leasing hire purchase agreements allow companies with inefficient working capital to deploy assets it can also be more tax efficient than standard loans because the payments are booked as expenses though any savings will be offset by any tax benefits from depreciation businesses that require expensive machinery such as construction manufacturing plant hire printing road freight transport and engineering may use hire purchase agreements as could startups that have little collateral to establish lines of credit a hire purchase agreement can flatter a company s return on capital employed roce and return on assets roa this is because the company doesn t need to use as much debt to pay for assets hire purchase agreements usually prove to be more expensive in the long run than making a full payment on an asset purchase that s because they can have much higher interest costs for businesses they can also mean more administrative complexity in addition hire purchase and installment systems may tempt individuals and companies to buy goods that are beyond their means they may also end up paying a very high interest rate which does not have to be explicitly stated rent to own arrangements are also exempt from the truth in lending act because they are seen as rental agreements instead of an extension of credit 4hire purchase buyers can return the goods rendering the original agreement void as long as they have made the required minimum payments however purchasers suffer a huge loss on returned or repossessed goods because they lose the amount they have paid towards the purchase up to that point 2allows for the purchase of high value itemsprevents a large outlay of cashimproves a company s roa and rocehigher overall costsownership does not transfer till all payments are madepotential for loss of capital if the good is returned before the contract is upincreased administrative complexityhire purchase agreement contractsregardless of the parties involved several key factors generally find their way into all hire purchase agreement contracts to be legally enforceable these contracts must include contracts should specify that they are hire purchase agreements and indicate the withdrawal period for instance the seller can allow the buyer to vacate the agreement within 15 days of receiving the contract 