Hire purchase and conditional sale
This information explains what hire purchase (HP) and conditional sale agreements are. It tells you about your rights if you want to end the agreement and the lender's rights if you don’t pay.
Hire purchase (HP) is a type of borrowing. It is different from other types of borrowing because you don’t own the goods until you have paid in full. Under an HP agreement, you hire the goods and then pay an agreed amount by instalments. While you are still making payments, you aren’t allowed to sell or dispose of the goods without the lender’s permission. If you do, you’ll be committing a criminal offence.
The lender may be able to repossess (take back) the goods if you fall behind with payments.
Conditional sale is similar to hire purchase. The agreement usually includes the condition that the goods don’t belong to you until you’ve paid the final instalment and the lender may be able to repossess (take back) the goods if you fall behind with payments.
You can end (terminate) a hire purchase or conditional sale agreement in writing and return the goods at any time. This can be useful if you can no longer afford the payments or you don't need the goods any more.
You will have to pay all the instalments due up to the time you end the agreement. If your payments come to less than half of the total price of the goods, you might still have some money to pay as the lender is entitled to this amount under the agreement. If you have already paid more than half of the price when you end the agreement, you can't get a refund but you usually won't have to pay any more.
If you're not sure whether you still owe anything, check the original credit agreement. This should show the total price of the goods and the amount you must pay if you end the agreement. The credit agreement is the legal document you signed when you bought the goods.
Lenders sometimes say you must pay the whole amount owed under the agreement before you can end it. This is wrong. If this happens, talk to an adviser.
If the lender ends the agreement, for example, because you haven’t kept up with the repayments, they may be able to repossess the goods. Usually, the lender will need a court order to do this.
In Scotland there can be complications if you have got rid of the goods so you no longer have them. The lender may try to repossess them without a court order however in most cases they should get a court order.
The lender will sell the repossessed goods at auction and the money they get will be used to repay your debt. If there isn't enough to pay the whole amount off, you will have to pay whatever is left plus any court costs. It's worth asking the lender if you can try to sell the goods yourself as you will often get more money for them this way.
You can get help sorting out your debts from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
You might be able to get your payments reduced or paused. Contact the company - they should work with you to stop your debts getting worse.
The company might agree to:
- reduce or stop charging interest on your arrears
- be flexible with the amount you have to pay back and how long you have to pay it
- allow you to pay a small amount or nothing for a fixed amount of time
- help you make a payment plan
The company should give you time to consider your options and get help with your debts.
They should pause your account if you’re waiting for your circumstances to get better. For example, you might be waiting for your first payment of wages or benefits.
If the company pauses your account, it’s a good idea to use this time to get debt advice. Talk to an adviser if you’re not sure how to repay your loan.
If the company is offering you a new payment plan
You should think carefully about whether you can afford the monthly payments - you can work out your budget to check if the payments are affordable for you.
The company need to get your permission before they make any changes to your payment plan. They might try to give you a worse deal. For example, they might say the car you bought has gone down in value and you need to pay more to make up for it.
Check if you’ll be worse off before you agree to any changes.
If your lender might repossess your car or goods
Your lender should only repossess something if they can’t get the money back another way.
Make sure you tell your lender if you’re in a difficult situation - for example, if you’ve lost your job. They might agree not to repossess something if it would make your situation worse.
Talk to an adviser if your lender tries to repossess something without trying to get the money back another way. For example, if they’ve refused to help you make a repayment plan.
Your lender should keep you up to date about their plan for repossessing your goods. They should also explain how your payment plan will work if you’ve asked for a delay - for example, it’s likely to increase the debt you owe.
If you feel your lender hasn’t kept you up to date, you can complain to an ombudsman.
If your client’s lender didn’t follow the FCA guidance, your client can complain to the Financial Ombudsman Service on their website.
Payment protection insurance
Many hire purchase and conditional sale agreements include Payment Protection Insurance (PPI). Check whether you can make a claim under the insurance, for example -to help you make payments if you are off work sick.
If you or the lender ends the hire purchase or conditional sale agreement, you may need to cancel the insurance separately as it often counts as a separate agreement. Always put your cancellation in writing.
For more information about PPI, in Scotland see Payment Protection Insurance in Debt fact sheets.
The Money Advice Service website has lots of useful information about borrowing and managing your money.