Hire purchase debt
This fact sheet covers England & Wales. We also have a version for Scotland if you need it.
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 your lender and any court action; and
find out how to make a complaint.
Extra help because of coronavirus
The Financial Conduct Authority (FCA) have told lenders to give people extra help if they cannot afford payments for cars or rent-to-own agreements because of coronavirus. See the Extra help if you are affected by coronavirus section later on.
The sample letters mentioned in this fact sheet can be filled in on our website.
What is hire purchase or conditional sale?
Nowadays hire purchase and conditional sale agreements usually relate to cars, although they are sometimes seen for furniture and white goods. They are different from ordinary credit agreements because under hire purchase and conditional sale agreements you do not own the goods until you have paid off the agreement.
With hire purchase and conditional sale agreements, if you do not keep up with the payments, it is possible for a creditor to repossess the goods. With 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.
Selling hire purchase goods
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.
Check your agreement
From April 2008, new agreements will normally be covered by the Consumer Credit Act 1974 even if you have borrowed more than £25,000 (unless the agreement is for business purposes). An agreement will not be covered by the Act if the borrower is a limited company.
Some hire purchase agreements may give you extra contractual rights, for example, you may be able to return the goods for free after a certain amount of time. Creditors may use other terms to describe these kinds of hire purchase agreement such as ‘Personal Contract Purchase’ (PCP) or ‘rent to own’. Check your agreement to see if you have any additional rights.
If you are not sure what type of agreement you have, check your contract. Contact us for advice if you are still not sure.
If you cannot afford to pay
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 headed 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 one third of the total amount payable under the agreement.
If you have paid a third or more of the total amount payable, the goods become ‘protected goods’ and the creditor must go to court for an order for the goods to be returned unless you consent to the repossession. They cannot just come round and remove them (‘snatch them back’).
If a creditor ‘snatches back’ goods without a court order and without your consent where a third or more has been paid, you are entitled to a refund of all the money you have paid under the agreement.
Also, 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’. The law is not clear about the recovery of a car from a car park.
Working out what you have paid
If you want to work out if you have paid one third or more, remember to include any deposit or part exchange as well as the instalments that you have paid.
If you want time to get debt advice and find a suitable debt solution, you may want to consider applying for breathing space.
Breathing space will stop most types of enforcement, and also stops most creditors applying interest and charges, for 60 days.
To find out more, see our Breathing space fact sheet.
Making an offer to pay
Use your budget to work out what you can afford to pay.
- If you can afford to meet the contractual monthly payments, try to also pay something towards the arrears.
- If you cannot afford to meet the contractual monthly payments, pay as much as you can afford instead.
Always send a copy of your budget summary, so your creditor can see how you have worked out your offer and that you are trying to pay as much as you can.
If the creditor has to go to court
There is still a chance that you can keep hold of the goods, as the court has the power to agree to this as long as you can pay the debt back in reasonable instalments.
If you have paid a third or more of the total amount payable under the agreement, or if the goods are kept on your premises and you do not consent to their repossession, the creditor will ask the court to send you a claim form asking for the goods to be returned. This is called an application for a ‘return order’. Notice of a hearing date with a District Judge is included. This hearing should be in your local county court hearing centre.
There will be a court form (N9C with the claim that you should fill in and send back to the court within 14 days. You must fill this in if you want the court to suspend the return of goods order and allow you to keep the goods. You need to offer to pay the debt back in monthly instalments you can afford.
Where you need to keep the goods, it is important to treat this debt as a priority over ordinary credit debts and offer as much as you can afford.
Send the form back to the court, not the creditor. The court will send a copy of your form to the creditor.
If the creditor accepts the offer the hearing will be cancelled. If the creditor does not accept the offer the hearing will go ahead.
Attend the hearing
You must attend the hearing. The court will decide at the hearing whether they will suspend the return order and what monthly instalments you should pay from then on. If you do not fill in the admission form there will be a hearing anyway.
If you don’t go to the hearing the court will probably grant the creditor an order telling you to return the goods. If the court has already made a return order and you still wish to keep the goods, it is possible to apply for the order to be suspended. Contact us for advice.
If you have paid less than a third
Where you have not paid a third of the total amount payable under the agreement and if you want to keep the goods, you should ask the creditor to agree to a payment arrangement with you. The creditor is most likely to accept if you can afford the full monthly instalments plus something towards the arrears.
If you can’t make the full payments, the creditor may agree to reduce the payments, but 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 and extend the length of the agreement. This is called a ‘time order’.
However, 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, you may have to decide whether you can realistically afford to keep the goods any more. If you decide that you cannot afford the goods, you need to decide the best way of ending the agreement.
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. The court may be willing to make a time order for a specific period if you have temporary financial difficulties. They may make a time order even if your financial problems are long term. For more information about this, see our Time orders on hire purchase fact sheet.
Amount owed 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 upon how the agreement is ended.
If you end the agreement
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. The one half or 50% figure is stated on the agreement in the box headed 'Termination: your rights'.
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.
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.
- 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.
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.
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.
The creditor ends the agreement
If you fall behind on the agreement, the creditor can 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. However, some agreements require notice to be sent to you by the creditor 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 section later in the fact sheet might be helpful.
What happens 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 credit debt and make an offer of payment using your budget. Use our budget tool to make a budget if you have not got one.
If you dispute the balance the creditor says you owe, then it is important to write to the creditor and tell them. You may have to put a defence in if they send you the county court claim form.
If you put in a defence there will be a hearing at the County Court where the District Judge will make the decision about how much you owe. They may decide that you owe less than the creditor has claimed. You will then have a county court judgment which you offer to pay in instalments that you can afford.
Personal contract purchase (PCP) agreements
Some creditors use the term personal contract purchase (PCP) agreement to describe hire purchase agreements for vehicles. PCP agreements often give you additional contractual rights, for example, you may be able to hand the vehicle back rather than make the final payment (sometimes called a balloon payment, because it is usually a lot bigger than your normal monthly payments). Check your agreement to see what it says.
Keeping up with payments and handing the vehicle back in at the end may be cheaper than choosing to end the agreement early yourself. If you choose to end the agreement early yourself, you normally have to pay 50% of the total amount payable. See the earlier section If you end the agreement.
Depending on how big the final payment is, you may find that you will not pay more than a third of the total amount payable before the end of the agreement. This means that if you miss payments, your creditor may be able to repossess the vehicle without getting a court order first. See the earlier section If you have paid less than a third.
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 happen from April 2007 onwards. See the next section Useful contacts for details of the Financial Ombudsman Service.
For more information about complaints, see our Complaining about your lender fact sheet.
If 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 call.
Extra help if you are affected by coronavirus
The Financial Conduct Authority (FCA) have told lenders to give people extra help if they cannot afford payments for cars or for rent-to-own agreements because of coronavirus. To count as rent to own, an agreement cannot be for a car or business purposes, and payments must be due more than once a month.
If your agreement isn’t for something essential and you’re struggling with other bills and debts, think about whether you would be best off terminating your agreement. See the earlier section If you end the agreement. Some PCP and rent-to-own agreements may give you extra options which could be cheaper, so check what your agreement allows. If your agreement is ending, you normally need to make a final payment or hand the vehicle or goods back. If this is going to cause any problems for you contact us for advice.
If you are asking your lender for help for the first time, or if your lender has already given you two 3-month payment deferrals, the FCA says that lenders should:
give you time and opportunity to repay, and not pressurise you into repaying your debt within an unreasonably short period of time;
put in place an affordable repayment arrangement, and take account your wider financial situation including other debts and essential living expenses;
suspend, reduce, waive or cancel any interest, fees or charges if a repayment arrangement is agreed.
If you are paying less than you originally agreed, this may be recorded on your credit reference files. Your lender won’t normally repossess essential goods if you are self-isolating or are living in an area where lockdown is in force.
If you are currently in your first 3-month payment deferral, you can still ask another 3-month payment deferral, but your payments cannot be deferred beyond 31 July 2021.
During a payment deferral:
- you may still be asked to make a token payment of £1; and
- lenders can repossess goods and vehicles but only as a last resort and they must respect public health guidelines.
A payment deferral should not affect your credit files unless you need more help, for example, if interest on the payments needs to be frozen. Potential lenders may still be able to find out that you didn’t make these payments as originally agreed in other ways though, for example, by looking at your bank statements.
Citizens Advice consumer helpline Phone: 0808 223 1133 www.citizensadvice.org.uk
Financial Conduct Authority Phone: 0800 111 6768 www.fca.org.uk
Financial Ombudsman Service Phone: 0800 023 4567 or 0300 123 9123 www.financial-ombudsman.org.uk
Finance & Leasing Association Phone: 020 7836 6511 www.fla.org.uk
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 or end the agreement
|50% of amount repayable||£2,000|
|YOU WILL OWE||£650|
Creditor ends the agreement
|Total amount payable under the HP agreement||£4,000|
|Sums already paid||£1,600|
|'Option to purchase' fee||£5|
|YOU WILL OWE||£1,495|