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Wednesday, 3 October 2012

Hire purchase and debt

You normally take out hire purchase (HP) or 'conditional sale' agreements when you buy cars or furniture. An HP agreement is a debt, and you don't actually own your goods until the debt is paid off. Until then, they belong to the person you bought them from (the creditor).

How HP differs from ordinary credit

HP agreements are different from ordinary credit agreements. With an HP agreement there are certain rules which apply, including:

  • you can't sell the goods until the money's paid off
  • creditors can ask you to return the goods if you don't make regular payments

With an ordinary credit agreement you can:

  • own the goods (and you can sell them)
  • be asked by creditors to pay back the money - not to return the goods

Your agreement paperwork will tell you what kind of agreement you have.

Falling behind on HP payments

If you fall behind on your payments, a creditor may ask you to return your goods. However, if you've paid more than a third of the total debt, they have to go through the county courts first (or the Sheriff Courts in Scotland).

If you've paid less than a third of your debt, a creditor only needs a court order when they want to remove goods from your property. But this isn't necessary if they're in a public place. For example, if you have a HP agreement on your car, a creditor can remove it from the street without a court order.

If your creditor takes you to court

The courts are there to help both you and the creditor. If you can pay back the debt in reasonable instalments, the court may let you keep your goods.

If you've paid more than a third of your debt

In this case, a creditor may try to get a 'Return Order' from the court, which forces you to return your goods. However, there must be a court hearing first (probably in your local County Court).

Before the hearing, the court sends you a 'Claim Form', which gives you the chance to return the goods yourself. They'll also send you an 'admission form', which lets you:

  • explain your financial situation
  • make a new offer of monthly payments to the creditor

You must send the admission form back to the court within 14 days. The court then talks to the creditor to see if they'll accept your terms. If they do, the hearing is cancelled; if not, or if you don't send back the form, the hearing goes ahead.

The court then decides whether or not to enforce the Return Order or 'suspend' it (meaning it will be enforced if you miss another payment later on). If you're allowed to keep your goods, the court will set your new monthly payments.

If you don't attend the hearing, the judge usually grants the Return Order.

If you've paid less than a third of your debt

In this case, your options are to:

  • ask the creditor to agree new terms (if you can afford the monthly instalment plus something toward the arrears, creditors are often willing to help)
  • ask the court for a 'Time Order' (which could alter the amount you pay, the length of the loan, or the interest rate)

Ending the HP agreement yourself

In some cases, it's more realistic to end the agreement - especially if you can't make reasonable payments.

When can you end an HP agreement?

You can end a consumer HP agreement (ie not a business to business agreement) at any time before making the last token payment. (All but the final one of your payments is for rent; the final payment is split between rent and a token amount to actually buy the goods.)

How you end a HP agreement

You can normally do this by handing back the goods.

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 per cent limit on your liability. Keep a copy of the letter of your termination in case you need proof of this later.

Your agreement paperwork will detail any special conditions the creditor has for ending an agreement.

Once the goods are returned

If you still owe the creditor money after returning the goods, you should treat this as an ordinary debt. If you disagree with the amount, you must write to the creditor straight away.

If the creditor takes the debt to court, you'll receive a Claim Form and get the chance to state your case (as with any other debt).

Complaints

Since April 2007 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 happened from April 2007 onwards.

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