Hire Purchase is a form of borrowing, but unlike many other loans you don’t own the item until you have fully repaid the amount you have borrowed. There are numerous situations when a hire purchase agreement would be used from cars through to consumer goods.
During this time you cannot sell the items unless you have permission from the lender. It is a criminal offence to sell on an item that is on hire purchase before you have repaid the debt.
If you fail to keep up your repayments the lender can repossess the item.
There are various terms associated with hire purchase agreement and it is important that you fully understand the terms and conditions before you agree to the contract.
A Conditional Sale
Very similar in nature to a hire purchase, a conditional sale agreement will usually incorporate a term that states the product doesn’t belong to you until you have paid the final instalment. If you fail to keep up your repayments, this will mean that the company can take back the product.
Ending a Hire Purchase or Conditional Sale Agreement
As a consumer you can terminate your hire purchase or conditional sale agreement. However, you must notify the company in writing that you wish to end the agreement and then return the goods. This is particularly useful if you don’t need the item anymore or you cannot keep up your repayments due to a change in circumstances.
Once you have notified the company of your intention, a final payment date will be arranged and you must meet the agreed instalment figure until this time. If the payments that you have made are lower than half the price of the product you may still have to pay the lender a fee because they are entitled to recouping this money as part of the agreement.
If you have paid more than half of the total cost of the item, you cannot claim a refund but you will usually not be expected to pay any more.
The original credit agreement will detail the total cost of the goods and any amounts that you must repay if you exit the agreement early. Credit agreements are legal documents and they are usually provided when you purchase the item. Some lenders can insist that you repay the entire amount that you owe under the agreement before you end it so be very careful that you check any agreement before signing.
There may be situations where the lender can repossess the goods. To do so they will have to obtain a court order, provided that you have paid more than a third of the total amount.
If it is less than this a court order is not required. Your initial agreement will state how much one third will be. Once the lender has repossessed the product they will sell them through auction and use the money to repay your debt.
If the figure received at auction is not enough to cover your debt, you will have to repay whatever is left in addition to costs associated with repossession. It is always worth asking the lender if you can sell the goods yourself because you will often receive a higher value this way.
If you have entered into a hire purchase agreement and you are having problems keeping up your repayments, it may be the best option to end the agreement yourself which will reduce the amount that you owe. The risk of falling behind on your payments is just too high and the lender can end the agreement and you could end up paying much more.
Payment Protection Insurance (PPI)
The majority of hire purchase agreements will include payment protection insurance. This is insurance that you can use if you cannot keep up the repayments for whatever reason. If a lender cancels your hire purchase agreement you will need to cancel any insurance because this will be issued by a separate provider, but make sure you write to the insurer to cancel.
Credit Agreements Explained
If you have entered into a financial agreement such as hire purchase, there is a high chance that you will have signed a credit agreement. This is a type of contract that enables you to pay for something over a period of time rather than straightaway.
As credit agreements are protected under the law, if you breach any of the terms you can be sued. The law that relates to credit is contained within two pieces of legislation, the most recent being the Consumer Credit Regulations 2010 and older legislation in the Consumer Credit Act 1974.
These regulations relate to unsecured credit so it will not include mortgages and it cannot be used for credit over £60,260. Credit cards, telephone contracts, broadband services and even insurance if you pay monthly require a credit agreement. Any goods that you buy on monthly instalments will be part of a credit arrangement.
Consumers have rights and a certain degree of protection under the credit agreements including;
The ability to withdraw from the agreement within 14 days of entering into it. If this relates to a credit card and you have used it you will be liable to repay any credit that you have used along with any interest accrued during this time.
- As a consumer, you must be notified of any interest rate changes
- When goods or services are purchased under a credit agreement the consumer may be able to follow up on any issues with the creditor when a resolution cannot be reached with the supplier
- You have a right to settle the agreement early or make a partial early settlement
- You must be notified if the debt is transferred or sold to a third party and this results in a change to the debt
- Where a credit application is denied due to credit reasons, the creditor must tell you that this has been the case and inform the consumer of which credit agency they used
- You are able to cancel a credit agreement and return something if bought through hire purchase
It is very difficult if not impossible to obtain a refund in a hire purchase agreement. The only exception to this rule is if you return the item within 14 days of purchasing and you bought the item over the telephone, on the internet, at home or by mail order.
Businesses usually provide a cooling off period where you can cancel without charge so check what this is before you enter into your hire purchase agreement because it can vary depending on the company.
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