Hire Purchase: Specifications and Conditions
One of the most popular ways to buy things on credit is to take out a Hire Purchase or HP contract. HP is a concept that started in the UK but has spread all over the globe, as people borrow money to get the things that they want or need. It’s often referred to as an instalment plan –especially in the USA.
If a buyer wants an item but cannot afford to pay for it upfront, they may choose to buy the item via hire-purchase contract. This allows the buyer the opportunity to pay a percentage of the item value as a deposit, and effectively they hire the goods for a monthly rental payment.
When the amount of the item plus any interest and extra charges agreed have been paid, then the buyer becomes the owner of the goods.
In summary, if you take out a hire purchase agreement, you rent the goods from the vendor until you’ve paid for them, and any interest on the value of the item that you have accrued. If you don’t pay, then the item will be returned to the vendor and you may be forced to pay the remainder of the instalments, despite not having the item in your possession anymore.
ConditionsHire Purchase Agreements must be made in writing and then signed by a the goods provider and the buyer - or a legal representative if this is acceptable under the T&Cs.
From the agreement it must be clear:
- What the goods covered by the agreement are
- How much the goods are to buy - their cash value
- The price for Hire Purchase - the total amount that will be payable for the buyer to become the owner of the goods
- Details of any deposit
- Details of monthly instalments, including the interest rate that will apply
- Thoroughly detailed description of the rights and responsibilities of each party
- Details of 'cooling off' period if any is offered
- Any rights of cancellation available to either party.
Having Second Thoughts?Many companies will automatically include a ‘cooling off’ period into their agreements, regardless of whether or not they are legally required to do so. However it is always worth asking the salesperson to explain the terms to you, so you know exactly where you stand should you decide you don’t want to go ahead with the HP contract.
Credit ChecksBe aware that if you apply for Hire Purchase it is likely that a credit check will be carried out. You should always be advised of this before it happens as a permanent record of the check will be placed on your credit file. Cancelling the agreement will not remove this check from your file, and lots of visible checks on your file can lead to future credit refusals.
Contract ObligationsThe person buying the goods via HP will have obligations such as:
- Agreeing to pay the instalments as laid out in the contract
- To take care of the goods - they may be required to insure the goods in the case that they are stolen or damaged - as they will have to continue to pay the instalments and possibly pay the seller compensation for the item lost
- To tell the owner where the goods are going to be kept
The person selling the item via HP will have the right in cases where the contract is breached to:
- Refuse to return the deposit
- To keep any monies already paid and demand the remaining balance
- To take the goods back
- To claim any damages for losses suffered
What Happens if I Don’t Pay?If you miss any payments before you have paid a third of the total amount owed then the seller can take the item back. There is a stipulation though that they can only repossess items that are in a public place - so if you have a car on HP they may come and retrieve it from your street, but they are not entitled to come into your property to take goods such as a TV or a sofa back.
If you have paid more than a third of the total amount owed then the seller must go to court to get the items back or to force you to pay. You may be sent a hearing date from the court when it will be decided whether they can accept any offer you make to pay or whether you need to return the goods.
If appropriate, a 'Time Order' may be offered, then this may allow you to bring the payments down to a level that you can afford. The court may decide to make a 'suspended order' which allows you to continue with the payments, but also gives the finance company the right to take back their item should you miss future payments.
If you want to end your contract while avoiding court action, write to the creditor, tell them you want to end the contract and send the goods back. As long as they are in acceptable condition (take photographs before returning), then minus any payments you have made, you will only be liable for:
- No more than half the original total amount
- Any arrears you have and the cost of repair to any damage
In most cases, the vendor will accept the item back and agree to end the arrangement. If not, you may need to seek independent legal advice.