Hire Purchase
If you've bought goods on hire purchase (HP), you are liable to pay back the money you owe in monthly installments. If you think your contract is unfair, want to terminate it early, or can't afford the repayments, read on to find out what to do next.
- Your rights using HP
- Read the small print
- Ending your contract early
- If you can't afford the repayments
- Complaining about goods bought on hire purchase
With other forms of credit, such as a loan or credit card, the goods you have bought belong to you straight away. When you use HP:
- You don't legally own the goods until you've paid back all the money you owe. This means that you cannot modify or sell them without the lender's permission
- Your contract is with a finance company (not the retailer) who will own the goods until the final payment is made
- The finance company can take the goods back if you don't keep up your repayments
- You will be liable for any damage caused to the goods during the contract period.
Under a hire purchase (HP) agreement, you pay an initial deposit followed by monthly payments (a portion of the money you borrowed plus interest) over an agreed period.
At the end of this period, you have the option of owning the goods outright, although your lender may require you to pay a fee (check because this could be high).
Conditional sale (CS) agreements are similar to HP, you will own the goods once all your instalments have been paid. There will be no extra fee to pay at the end.
Lenders must give you key information about the contract that you can take away and consider before you buy.
The HP contract you have been given to sign must state in plain language what is expected of you and how much you will pay.
If your agreement does not include all important financial information, the lender may need to get a court order to enforce it.
Example:
Your HP contract may state that:
- You are at risk of losing the goods and will become liable to pay the lender the full amount, after one late or missed payment, or if you break the agreement in some other small way
- You must pay excess charges if you break the agreement. For example, excess charges for reminder letters for late payment.
These could be unfair terms. If you've already signed an HP contract which you think might contain unfair terms, seek advice. See Unfair terms in contracts for more information.
You have two ways of ending your HP agreement early:
- You can terminate an HP agreement and return the goods at any time by writing to the lender, as long as you bring your total payments up to half of the total amount payable under the agreement (the exact amount will be stated in a box on the front of your contract). But you will also have to pay off any credit you took out to pay for insurance. If you have already paid half, you only have to pay for any missed payments or damage to the goods. But if you have already paid more than this amount, you will not get a refund of the difference. You should not be charged to return the goods. If under the terms of your contract you must take the goods back, this should only be to premises within a reasonable distance of your home.
- You can also pay off your loan early (including any credit for insurance) and keep the goods. Contact your lender and find out how much this will cost. You will be entitled to a rebate on future charges. There are rules on how this is calculated. Credit agreements should include examples of how much it will cost to pay early at different times.
If you are in doubt about which method is best for you, ask for help.
If you can't afford the repayments
- Contact your lender as soon as possible, as it may be possible to renegotiate the deal. There are free, independent advisers you can talk .
- Your lender has the right to take back the goods if you don't keep up your repayments. You'll be sent a notice first, giving you the chance to put things right. But you will have to act quickly - within seven days.
- If you haven't got the money to put things right, explain this to the lender. If they won't agree to less than full payment, they may take you to court. You can ask the court to give you extra time to pay if you really want to carry on with the deal. Seek advice on this.
- If you've paid more than a third of the total cost of the HP or CS (not including any insurance), your lender will need a court order to take the goods back. If you've paid less than this, the lender still can't enter your property to take the goods without a court order, unless you give them your permission to.
- If you are having problems keeping up with repayments it may be cheaper in the long run to hand the goods back.
Complaining about goods bought on hire purchase
If you are unhappy with goods that you have bought on hire purchase, you can complain. See our template letter for complaining about faulty goods bought on hire purchase
