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What Is Hire Purchase Debt?

Hire Purchase (HP) is a type of finance agreement that is often used to purchase motor vehicles or household goods e.g. white goods and furniture.

 

When purchasing vehicles or goods through an HP agreement, you won’t actually own the goods until the last payment has been made and the debt has been cleared.

 

This means that the creditor could take the item back if payments aren’t made.

What Happens If I Fall Behind With Payments?

As with most types of arrears, in the first instance, your creditor will contact you if you fall behind with repayments.

 

If you fail to catch up with your repayments then, after approximately three months, you will likely receive a Default Notice. Once the Notice has been issued, the creditor can begin to take action, including repossessing the purchased item.

Could I Sell the Item to Clear the Debt?

If you are considering selling your HP purchased item in order to help you clear debt then bear in mind that until the item is fully paid for, it is not technically yours. This means that it is illegal to sell it and the creditor may take legal action against you.

 

Vehicles that are currently subject to an HP agreement are recorded on the HP Index database. This is a public record which anyone can check before they buy the vehicle from you. It is common practice for a dealership to check this database before agreeing to a part exchange or a sale.

You could have 81% of your debt written off.

Hire Purchase Repossession

If you have been issued a Default Notice on your HP agreement, then your creditor may choose to repossess your purchased items. How they do this can depend on a number of factors.

 

Your purchase can be repossessed without a court order if:

 

  • You have paid less than a third of the amount owed, and
  • The items are not kept in your home or on private land.

This basically means that if the item in question is a car and you have paid less than a third of the agreed amount; if it is kept in a garage or on a driveway, bailiffs would require a court order to repossess it. If it is kept on the road, even if this is outside your house, then they would not require a court order.

 

This means that household goods like appliances and furniture often require a court order to repossess, simply because they are kept inside your home.

 

If your creditor does manage to repossess your purchased goods, then they will most likely try to sell them at an auction. If they raise enough money to clear your debt, then that will be the end of the matter. If after sale, however, there is still an outstanding balance on the credit agreement, you are still liable to pay. Your creditor may take legal action against you to pursue this remaining money.

Can I Just End an HP Agreement Myself?

If you are struggling with your repayments towards your HP agreement and your creditor is yet to issue a Default Notice, then you could opt to end the agreement yourself.

 

If you choose this course of action, then bear in mind that you will not be refunded any of your payments and you will have to give the purchased goods back.

 

You would be required to send notice in writing to your creditor, of your intent to cancel the agreement. We suggest sending this via recorded mail, so you have confirmation that they have received your letter. If you contact your creditor in writing, then they must agree to your request.

 

Your creditor will respond in writing to you, telling you how to return the goods. They may choose to come to you, or they may ask you to return the item to the shop or dealership where it was purchased. They are not allowed to ask you to travel long distances.

 

There is a chance that, even after returning the goods, there could still be a balance left to pay. If you have paid over half of the payments in the agreement, then this is unlikely.

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Is it Better to Cancel or Default on My Agreement?

The decision of cancelling an HP agreement can often be a balance between sticking it out as long as possible and cancelling it before any arrears begin to mount up.

 

Often the longer you are in the agreement, the less any outstanding balances may be after you give the goods back.

 

If you do let arrears build up these will often have to be paid and if the agreement Defaults, you will often have a larger balance to pay after the auction of the goods.

 

So, in short, if you feel you are beginning to struggle with your repayments, it is better to act sooner rather than later.

Who Can Help Me with My Debt?

If you are struggling to meet your HP repayments and this is your only debt, then cancelling can often be the best option.

 

 

If you live in either England, Wales or Northern Ireland, then, other potential solutions could include:

 

If you live in Scotland then you could apply for:

 

If you no longer have the item that you purchased through the HP Agreement, or still have the items but you have other debts e.g. Council Tax or any other unsecured debt, then an IVA could help you clear enough debt to make it easier to deal with your HP payments. 

 

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