Hire purchase and conditional sale

 December 2016

Fact sheet no. BDL12 SCOT Hire purchase and conditional sale

This fact sheet tells you your rights if you have a hire purchase or conditional sale agreement that is regulated by the Consumer Credit Act 1974.

Use this fact sheet to:

  • decide what sort of credit agreement you have;
  • understand your rights if you cannot keep up with payments;
  • decide if you want to keep your goods or return them to the lender;
  • deal with action by your lender; and
  • find out how to make a complaint.

The sample letters mentioned in this fact sheet can be filled in on our website.

What is hire purchase or conditional sale?

Although people often talk about ‘buying on HP’, hire purchase agreements are quite unusual these days. Cars are the most common goods sold under hire purchase or conditional sale agreements. With hire purchase and conditional sale agreements you do not own the goods until you have paid the credit agreement off. This means they are not the same as ordinary credit agreements.

On ordinary credit agreements, the goods you buy belong to you from the time you take out the credit. The lender cannot take the goods back. They can only ask you to pay the money you owe under the agreement.

This fact sheet only covers hire purchase or conditional sale agreements regulated by the Consumer Credit Act 1974. Some agreements for business purposes are not regulated by the Consumer Credit Act. If you are not sure if your agreement is regulated, contact us for advice.

Warning:

ownership rights

With hire purchase or conditional sale agreements you cannot sell the goods yourself without the creditor's written permission. If you sell the goods without permission it can be a criminal offence.

Extra advice:

type of agreement

If you are not sure what type of agreement you have, check your contract. If it is a hire purchase or conditional sale type agreement it will look like the example at the end of this fact sheet. The agreement will say clearly if it is regulated by the Consumer Credit Act. If you think you might have a different type of agreement or a hire purchase or conditional sale agreement that does not mention the Consumer Credit Act, contact us for advice.

 

 

What if I cannot afford to pay?

Remember:

protected goods

If you have paid more than a third of the total owing, the goods become 'protected goods'. The creditor must apply to the sheriff court to ask for the goods back. They cannot just come round and remove them.

If you fall behind with your payments on a hire purchase or conditional sale agreement, the creditor may be able to repossess the goods.  Look at your agreement.  There will be a box, ‘Repossession: your rights’, telling you how much you need to have paid to stop the creditor taking the goods back without a court order or your consent.  This should be a third of the total amount owed under the agreement.

Information:

the law on repossession 

There is confusion in Scotland about whether or not a creditor always has to get a court order to repossess hire purchase goods.  In England it is not always necessary for the creditor to have a court order before repossession. Because Scottish law on this is unclear, you may want to point out to the creditor that they should seek a court order before repossessing goods.  If the creditor seizes the goods without a court order, the law on this point can only be clarified by going to court.

Even if you have not paid more than a third of the total amount payable under the agreement, the creditor will need an order from the court or your consent to remove the goods from ‘any premises’ they are on.

‘Any premises’ is not defined but includes your garage or drive.  If your car is parked on the road (and you have not paid a third) then it is at risk of being ‘snatched back’. However the legal position of this is not clear. Under Scottish common law, it could be argued that it is illegal to take your car from the road without a court order. The law is not clear about the recovery of a car from a car park.

If you want to keep the goods and make a payment arrangement with the creditor, you may be able to do so if you can afford the full monthly instalments, plus something towards the arrears.  If you cannot make the full payments the creditor may agree to reduce the payments, but this is usually by a small amount and only for a short time.

In certain circumstances you may be able to go to court and ask to pay less than the full monthly instalment. This is called a ‘time order.’

If you have received an ‘arrears notice’ or ‘default notice’ from your lender, you can apply to the court for a ‘time order’ under the Consumer Credit Act 1974.

See our fact sheet:

Time orders.

The court will usually only look at making a time order to reduce your payments for a temporary period.

If you have a drop in your income that is permanent you may no longer be able to afford to make more than token payments to the lender.  If this is the case then you may have to decide whether you can realistically afford to keep the goods any more.  You need to decide the best way of ending the agreement.

How much will I owe if the agreement ends?

If you have to decide whether to end a hire purchase or conditional sale agreement there are two options:

  • terminate and end the agreement and return the goods voluntarily; or
  • let the creditor terminate and end your agreement and repossess the goods.

There can be a difference in the amount you end up owing depending on how the agreement is ended.

You end the agreement

Information:

key figures

The one half or 50% figure is stated on the agreement in the box headed 'Termination: your rights'.

You have the right to terminate and end your agreement under Section 99 of the Consumer Credit Act 1974 at any time before your last instalment is due, although you will have lost the right to terminate your agreement if the creditor has already terminated it, or if the full balance of the agreement has become payable.

Information:

calculating what you owe

The creditor may work out the amount you owe using a different calculation from those shown in the Example agreement at the end of this fact sheet. Contact us for advice if you want to dispute the balance.

If you decide to terminate your agreement voluntarily and hand back the goods to the creditor, you should only have to pay up to half of the total amount payable under the agreement, minus sums that you have paid and sums that  are due.  Sums that you have paid include any deposit plus the instalments that you have paid. Sums due are any arrears or missed payments due at the time of termination.

In addition, you will also owe any damages if you have failed to take reasonable care of the goods (over and above normal wear and tear).  The creditor might argue that there will be an extra charge for damage or unusual wear and tear.  It is important to look at any charges to see if they are reasonable.  See the Example agreement at the end of this fact sheet.

It is very important that you tell your creditor in writing that you are terminating and ending your agreement.  If you do not terminate in writing, the creditor will not treat it as a voluntary termination and you will not be able to benefit from the 50% limit on your liability.  Keep a copy of the letter of your termination in case you need proof of this later. There is a Terminate your hire purchase agreement sample letter, which you may want to adapt and send to your creditor when terminating your agreement.

You do not need to have actually paid the 50% to be able to terminate the agreement, although some creditors say you do. All that is necessary is for you to give notice to the creditor in writing that you are terminating the agreement.

From October 2008, your lender has to send you a yearly statement about your agreement.  They also have to send you an arrears notice, if you miss two payments, along with a ‘debt advice and information package’, telling you where to go for help.  If your lender does not follow these rules, they may not be able to take any more action against you, or add interest and charges until they do so. Contact us for advice.

Warning:

default notices

You may have a default notice sent to you by the creditor because you are behind with the payments on your agreement.  Once the time has run out on the default notice, you may have lost the right to end the agreement voluntarily and to return the goods yourself.  It depends upon your agreement.  Your creditor may have called in or ‘terminated’ the agreement when the default notice runs out.  Some agreements say another notice to terminate the agreement has to be sent to you after the default notice has run out. Contact us for advice.

Also, where a hire purchase agreement contains a separate subsidiary agreement for insurance products (e.g. for payment protection insurance and/or a guarantee or warranty), it is not necessary to pay off this agreement before terminating the hire purchase agreement.

 Some creditors try to charge for collecting the goods from you after the agreement has been terminated.  It appears that this is not allowed under the Consumer Credit Act.  If asked to pay an additional charge, you can complain to your trading standards department or contact us for advice.

Your agreement may say that you have to return the goods to your original supplier or somewhere similar like an auction house.  If that is the case, you should not be asked to return the goods further away than is reasonable on the grounds of cost and distance.

Terminating and ending your hire purchase agreement does not terminate a subsidiary insurance agreement. You will remain liable for it.

The creditor ends the agreement

If you fall behind with the agreement, the creditor will terminate the agreement in writing. They must send you a ‘default notice’ under the Consumer Credit Act 1974.

They will then order you to return the goods. The default notice tells you what payments are outstanding and gives you a date by which to make up the arrears. If you cannot pay the arrears within the time specified, the whole balance may then automatically become payable and the agreement terminated. Some agreements need another notice to be sent to you before the agreement is terminated.

Where a creditor terminates an agreement and repossesses the hire purchase goods, you will usually have to pay the full amount owed on the original hire purchase agreement, minus what you have paid and minus the amount the creditor gets back from selling the goods.

The 'option to purchase fee' is also deducted. The Example agreement at the end of this fact sheet might be helpful.

Once the goods have been returned

Once the goods have gone back to the creditor they can try to recover any balance still owed by you. You can treat the debt as an ordinary debt and make an offer of payment using the self-help pack and your budget.

If the creditor does not accept your offer they can sue you in the sheriff court for the balance.

If you dispute the balance the creditor says you owe, then it is important to write to the creditor and tell them. This may be because they are claiming you damaged the goods. You may have to put a ‘defence’ in when they send you the court claim, which is sometimes called an ‘initial writ’. The court can set a lower amount than the creditor is claiming if they think the creditor has been adequately compensated for their loss.

Complaints

You can complain to the Financial Ombudsman Service about how a lender or debt collection agency has behaved when dealing with your account. You will have to follow the lender’s complaints procedure first.  You can only complain about events that have happened from April 2007 onwards.

See our fact sheet:

Complaining about your lender.

Extra advice: 

paperwork not clear?

If you think you have a hire purchase or conditional sale agreement and you are not sure what to do contact us for advice. It would be helpful if you have your credit agreement and any default notice with you when you contact us.

     

Useful contacts

Financial Conduct Authority
25 The North Collonade
Canary Wharf
London
E14 5HS
Phone: 0800 111 6768
Email: consumer.queries@fca.org.uk
 
Financial Ombudsman Service
Exchange Tower
London
E14 9SR
Tel: 0800 023 4 567 or 0300 123 9123www.financial-ombudsman.org.uk
 
Finance & Leasing Association
2nd Floor, Imperial House15-19 Kingsway
London
WC2B 6UN
Tel: 020 7836 6511
 
Citizens advice consumer service
Tel: 0845 404 0506

Example agreement

How the amount you owe can differ 

  • Total amount payable under the HP agreement = £4,000
  • Amount already paid (deposit + instalments) = £1,600
  • Arrears ('sums due') = £200
  • Damages for failure to take reasonable care of goods = £250
  • Value/sale proceeds of goods = £900
  • 'Option to purchase' fee = £5

Where you terminate / end the agreement

​ ​50% of amount repayable ​£2,000
LESS
​Sums paid ​£1,600
​Sums due ​£200
​= £200
PLUS
​Arrears ​£200
​Damages ​£250
​YOU WILL OWE £650

Creditor ends the agreement 

​Total amount payable under the HP agreement ​£4,000
LESS
​Amount already paid ​£1,600
​Sale proceeds ​£900
​'Option to purchase' fee ​£5
​YOU WILL OWE £1,495
 

Sample hire purchase agreement