A hire purchase or conditional sale agreement is where the company that has supplied you with the finance owns the goods until you have made the final payment. For example, these types of agreements are often used to pay for cars. Your agreement will be with the finance company rather than with the garage.
Arrears of a hire purchase or conditional sale agreement should sometimes be treated as a priority debt because the company has the power to:
If the goods are something you can happily live without then the debt is not a priority. However if, for instance, you have bought a car for work and might lose your job if the car goes, the debt should be treated as a priority.
How do I know if I have a hire purchase or conditional sale agreement?
Most goods bought on credit are not bought on hire purchase or conditional sale. For example, if you bought something on a store's credit card or with a loan. With these other forms of credit, you own the goods straight away. The creditor (the person or company you owe money to) has no right to have the goods back if you owe them money.
You have only bought something on hire purchase or conditional sale if you have a hire purchase agreement or a conditional sale agreement.
Check what sort of agreement you have. If you are not sure, ask the creditor for a copy of your agreement or get advice from a Debt Adviser.
Does the creditor have to go to court to get back the goods?
If you have paid less than a third of a hire purchase or conditional sale agreement, the company has the right to get the goods back. They do not need to go to court.
Your creditors may let you keep the goods and make reduced payments for a while if you let them know about your temporary financial difficulties. After an agreed period of time they will usually want you to start making the contractual repayments again plus something towards the arrears.
If you have paid more than a third, the company needs to go to court before they can get the goods back from you. The court may agree to let you keep the goods and pay less for a while.
How much should I offer to repay?
If you want to make reduced payments or to repay the arrears you need to work out how much you can afford to pay. Do this by checking how much money you have coming in and how much you need to live on each week or month. Use only the money that is left over to decide how much you can pay.
Remember, in the long term:
- You need to continue making the payments as agreed under the contract
- You need to pay something extra off the arrears
- Whatever extra you pay off the arrears should be enough to cover interest payments plus some extra
- Your offer needs to be realistic for you - be sure you can keep up with the repayments offered without getting into debt with something else
If you cannot meet all of the four points above get advice from a Debt Adviser.
Can I cancel the hire purchase / conditional sale agreement and return the goods?
If you have decided that you no longer need the car or the goods, you can cancel the agreement at any time and return the item. You can do this before your creditor cancels the agreement.
You may still owe some money to the creditor but this will usually be a lot less than if you simply hand back the goods (without cancelling the agreement) or if you wait for your creditor to take (repossess) the goods back.
If you cancel the agreement and have already paid more than half, you may not owe your creditor any more money.
If you decide to cancel the agreement, you should write to your creditor. You need to say that you are terminating the agreement and any linked agreements such as insurance or warranties. Make sure you keep a copy of the letter.
Some creditors may make it difficult for you to cancel your agreement. If this happens you should get advice from a Debt Adviser.
Information on other websites
National Debtline
How to deal with Hire Purchase debt
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Information Provider:
Manchester Advice
Date Written:
8 April 2005
Date Reviewed:
30 October 2008
This information is for guidance only and is not an authoritative statement on the law. Please read our Terms and Conditions.
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