Debt advice for money owed on vehicles or household items
Also known as a Conditional Sale, Hire Purchase is a form of finance that is used to purchase vehicles and large domestic items, such as white goods, furniture or technology.
Hire Purchase agreements typically run for between three and five years.
There are important differences between HP and more mainstream finance, such as the fact that you don’t own the financed items outright until the final payment is made.
The advantages of using Hire Purchase as a credit solution
- Hire Purchase allows you to spread the cost of financing what would otherwise be a large purchase that you couldn’t afford to pay for all in one go.
- After you’ve made the final repayment the goods become yours, in contrast to leasing an item, where you effectively ‘rent’ the item and never own it.
- Obtaining Hire Purchase credit is relatively easy for most consumers with an average-to-good credit score.
The disadvantages of Hire Purchase as a credit solution
- Hire Purchase agreements are generally very fixed in nature. This means that your lender may refuse to alter the repayment terms part way through the agreement, which can prove a problem should you run into financial difficulties.
- As you don’t own the asset until it’s fully repaid, it won’t be protected should you be made bankrupt.
- Items financed through Hire Purchase can become an expensive outlay should they be stolen or destroyed prior to the credit being repaid. This is because any insurance policy may only cover the value of the item at the time of theft/destruction, rather than the full credit balance that remains. To protect yourself from this situation you may want to consider Gap Insurance.
Debt help tips for tackling Hire Purchase debts
- Once you miss a repayment on your Hire Purchase agreement your creditor will contact you. Most will notify you of a date in the near future when they’ll attempt to collect the payment again. This usually comes at a cost in the form of an administrative fee. At this point you should make it a priority to communicate with your creditor and meet the next repayment date.
- You should check your contract to see where you stand in terms of repossession; look for the section titled: Repossession: your rights
- If you’ve repaid more than a third of the total balance, your goods are officially ‘protected goods’, and the creditor must repossess the item via the courts. If the finance company collects the goods despite this and you don’t provide your consent, you’ll be entitled to a full refund of all repayments made to the creditor.
- Once any goods have been returned, either through repossession or a mutual agreement, your creditor may make a proposed balance to be repaid which will cover the ‘gap’ between the item value and the remaining credit. You can either accept or reject this proposal, and then make a counter offer. Should you be unable to come to an agreement, your creditor may sue you in county court. Should they succeed in this, you’ll have a credit-damaging CCJ logged on your credit record.
- Seek independent debt advice and research potential debt solutions before making your next move.
- Should you miss further repayments, your creditor can repossess the goods if:
- You’ve not yet reached repayments totalling to a third of what is owed, and:
- The goods aren’t stored in your home or on private land (such as in a publicly accessible business).
IVAs – A potential debt solution for Hire Purchase debt
An Individual Voluntary Arrangement could be the debt solution you’ve been seeking to address your hire purchase debt.
IVAs are designed for those who have debts owing to more than two creditors, and above a total of £5,000. After either five or six years, you could be debt free, with a portion of your debt written off completely.