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How to deal with Hire Purchase Debt

Dealing with hire purchase debt problems can be a different ball game to dealing with other debts. The agreement that you enter into here simply isn’t the same as that you would enter into with a lender when you take out a personal loan or a credit card. So, you have different issues to factor in with this kind of agreement.

Why is hire purchase different?

  • Hire purchase is different to other types of lending basically because you agree to make regular payments to buy something (like a car or a piece of furniture) on a ‘hire’ basis until you have repaid what you borrowed. So, for example, if you took out a hire purchase agreement to buy a car then you don’t actually own that car until you have paid off your agreement in full.

What does this mean?

  • This means that your hire purchase company still owns the product that you purchased even though you are currently using it. So, for example, if you are having money problems and think about selling the item here to raise cash as an asset then you simply can’t do so unless the hire purchase company gives you written permission. You are paying for the use of the item in question until your agreement is done and the hire purchase company is still the technical owner until that that point. If you borrow money from a bank to buy a car and then get into repayment difficulties then they will chase you for the money you owe them. Here the hire purchase company will chase for the item you purchased in the first place.

What if I can’t make my repayments?

  • If your debt problems are such that you cannot meet your obligations under your hire purchase agreement then the company has the legal right to repossess your item(s) under the terms of their agreement with you. They still technically own it after all. But, you do have some protection here.

    In most cases there will be a certain point that you can reach where the hire purchase company cannot simply take back their goods even if you stop paying for them. This is usually based on the payment of one third of what you owe in total. This can, however, vary so do check your agreement to see where you stand.

    So, if you have paid back less than this amount then the hire purchase company can take back your goods without your permission and without the need for a court order. If you have surpassed this limit then it becomes harder for them to do so. Once you are over this limit the goods in question are legally described as ‘protected’ and the hire purchase company can only repossess them if you give them permission or if a court order is given.

What if I have reached the protected limit but they take the goods anyway?

  • If this happens and you have repaid over a third of everything that you owe then the hire purchase company is not acting legally if they take goods without your permission/a court order. In this case you should be able to claim back all of the money you have paid for the goods in the past.

    It’s also worth remembering that hire purchase companies can only repossess goods, even if you haven’t yet repaid the third as agreed, in certain circumstances. So, for example, they can repossess your car if it is parked in the street. But, any goods that are on your premises cannot be simply taken without permission/court order. So, they shouldn’t take your car if it is parked in your drive or in your garage or if you deny them permission to do so.

What if they go to court?

  • If your hire purchase firm applies to repossess your goods through the courts you will be sent a Return of Goods Order stating that they want them back. You will also be sent a form that you should fill in if you want to keep your goods – if successful this will prevent the Return of Goods Order being issued. You will also be given a date to appear in court for the court order hearing.

    If you want to keep your goods here then the court is likely to be open to your offering a repayment schedule where you pay back something every month to keep them. The payments you offer to make here need to be set at a decent level – if not, the hire purchase company will simply reject them. If they accept them then the court hearing will not go ahead.

    If the court hearing does go ahead then the court will decide who has the best case here, you or the hire purchase company. In some cases they may tell you to give the goods back and in others they will tell the hire purchase company to work with you to find a suitable deal and will set repayments.

    If you haven’t reached the protected limit as yet but still want to keep your goods then you can also ask for help from the court. In many cases the hire purchase company will agree to a short period of smaller repayments but this won’t generally last for a long time – but a court can order them to accept a Time Order which will give you more time to play with.

What if I just end my agreement?

    In some ways it can be better to simply terminate your agreement if you know that you can’t make any repayments and to give the hire purchase company permission to take their goods back. This is best done before they try to end your agreement with a view to repossession as it could work out cheaper for you in terms of how much you will owe. You cannot simply terminate your agreement and walk off debt free in either case.

    The Consumer Credit Act of 1974 gives you the right to end your hire purchase whenever you like unless the hire purchase company has started the process itself. This must be done in writing otherwise you will end up owing more. If you make the first move here in writing then you may only owe half of what you owe and you will also qualify for deductions to be made based on what you have already repaid and what you still have to pay. This will not be the case if the hire purchase company makes the first move and terminates the agreement.

    Do bear in mind, if you are considering doing this, that financial agreements can be hard to understand and that hire purchase companies may not always tell you your rights under the Consumer Credit Act. Do make sure to get some independent and reliable advice before you do anything here to minimise the debts that you will incur.
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