Use this fact sheet to:
decide what sort of credit agreement you have;
understand your rights if you cannot keep up with payments;
decide if you want to keep your goods or return them to the lender;
deal with your lender and any court action; and
find out how to make a complaint.
The sample letters mentioned in this fact sheet can be filled in on our website.
What is hire purchase or conditional sale?
selling hire purchase goods
This means you cannot sell the goods yourself without the creditor’s written permission. If you sell the goods without permission it can be a criminal offence.
Nowadays hire purchase and conditional sale agreements usually relate to cars, although they are sometimes seen for furniture and white goods. They are different from ordinary credit agreements because under hire purchase and conditional sale agreements you do not own the goods until you have paid off the agreement.
With hire purchase and conditional sale agreements, if you do not keep up with the payments, it is possible for a creditor to repossess the goods. With ordinary credit agreements, the goods you buy belong to you from the time you take out the credit. The lender cannot take the goods back. They can only ask you to pay the money you owe under the agreement.
check your agreement
If you are not sure what type of agreement you have, check your contract. If it is a hire purchase or conditional sale agreement it will look like the example at the end of the fact sheet. Contact us for advice.
From April 2008, new agreements will normally be covered by the Consumer Credit Act 1974 even if you have borrowed more than £25,000, (unless the loan is for business purposes).
If you cannot afford to pay
working out what you have paid
If you want to work out if you have paid one third or more, remember to include any deposit or part exchange as well as the instalments that you have paid.
If you fall behind with your payments on a hire purchase or conditional sale agreement, the creditor may be able to repossess the goods. Look at your agreement. There will be a box headed Repossession: your rights telling you how much you need to have paid to stop the creditor taking the goods back without a court order (or your consent). This should be one third of the total amount payable under the agreement.
If you have paid a third or more of the total amount payable, the goods become ‘protected goods’ and the creditor must go to court for an order for the goods to be returned unless you consent to the repossession. They cannot just come round and remove them (‘snatch them back’).
If a creditor ‘snatches back’ goods without a court order and without your consent where a third or more has been paid, you are entitled to a refund of all the money you have paid under the agreement.
Also, even if you have not paid more than a third of the total amount payable under the agreement, the creditor will need an order from the court, or your consent, to remove the goods from ‘any premises’ they are on.
‘Any premises’ is not defined but includes your garage or drive. If your car is parked on the road (and you have not paid a third) then it is at risk of being ‘snatched back’. The law is not clear about the recovery of a car from a car park.
If the creditor has to go to court
There is still a chance that you can keep hold of the goods, as the court has the power to agree to this as long as you can pay the debt back in reasonable instalments.
attend the hearing
You must attend the hearing. The court will decide at the hearing whether they will suspend the return order and what monthly instalments you should pay from then on. If you do not fill in the admission form there will be a hearing anyway. If you don’t go to the hearing the court will probably grant the creditor an order telling you to return the goods. If the court has already made a return order and you still wish to keep the goods, it is possible to apply for the order to be suspended. Contact us for advice.
If you have paid a third or more of the total amount payable under the agreement, or if the goods are kept on your premises and you do not consent to their repossession, the creditor will ask the court to send you a claim form asking for the goods to be returned. This is called an application for a ‘return order’. Notice of a hearing date with a District Judge is included. This hearing should be in your local county court hearing centre.
There will be a court form (N9C) with the claim that you should fill in and send back to the court within 14 days. You must fill this in if you want the court to suspend the return of goods order and allow you to keep the goods. You need to offer to pay the debt back in monthly instalments you can afford.
Where you need to keep the goods, it is important to treat this debt as a priority over ordinary credit debts and offer as much as you can afford.
Send the form back to the court, not the creditor. The court will send a copy of your form to the creditor.
If the creditor accepts the offer the hearing will be cancelled. If the creditor does not accept the offer the hearing will go ahead.
If you have paid less than a third
Where you have not paid a third of the total amount payable under the agreement and if you want to keep the goods, you should ask the creditor to agree to a payment arrangement with you. The creditor is most likely to accept if you can afford the full monthly instalments plus something towards the arrears.
If you can’t make the full payments, the creditor may agree to reduce the payments, but usually by a small amount and only for a short time. In certain circumstances you may be able to go to court and ask to pay less than the full monthly instalment and extend the length of the agreement. This is called a ‘time order’.
If you have received an ‘arrears notice’ or ‘default notice’ from your lender, you can apply to the court for a time order under the Consumer Credit Act 1974.
The court may be willing to make a time order for a specific period if you have temporary financial difficulties. They may make a time order even if your financial problems are long term.
See our fact sheet:
However, if you have a drop in your income that is permanent, you may no longer be able to afford to make more than token payments to the lender. If this is the case then you may have to decide whether you can realistically afford to keep the goods any more. If you decide that you cannot afford the goods you need to decide the best way of ending the agreement.
Amount owed if the agreement ends
If you have to decide whether to end a hire purchase or conditional sale agreement, there are two options:
There can be a difference in the amount you end up owing depending upon how the agreement is ended.
If you end the agreement
- You have the right to terminate and end your agreement under Section 99 of the Consumer Credit Act 1974 at any time before your last instalment is due, although you will have lost the right to terminate your agreement if the creditor has already terminated it or if the full balance of the agreement has become payable.
- If you decide to terminate your agreement voluntarily and hand back the goods to the creditor, you should only have to pay up to half of the total amount payable under the agreement, minus sums that you have paid and sums that are due. Sums that you have paid include any deposit plus the instalments that you have paid. Sums due are any arrears or missed payments due at the time of termination.
- The one half or 50% figure is stated on the agreement in the box headed Termination: your rights.
A creditor may send you a default notice if you are behind with payments. When the time on the default notice has run out you may have lost the right to end the agreement voluntarily. It depends on what your agreement says. Contact us for advice.
In addition you will also owe any damages if you have failed to take reasonable care of the goods (over and above normal wear and tear). The creditor might argue that there will be an extra charge for damage or unusual wear and tear. It is important to look at any charges to see if they are reasonable. See the example agreement later in this fact sheet.
It is very important that you tell your creditor in writing that you are terminating and ending your agreement. If you do not terminate in writing, the creditor will not treat it as a voluntary termination and you will not be able to benefit from the 50% limit on your liability. Keep a copy of the letter of your termination in case you need proof of this later. See the Terminate a hire purchase agreement sample letter, which you may want to adapt and send to your creditor when terminating your agreement.
notices and statements
From October 2008, your lender has to send you a yearly statement about your agreement. They also have to send you an arrears notice, if you miss two payments, along with an information sheet telling you where to go for help. If your lender does not follow these rules, they may not be able to take any more action against you, or add interest and charges until they do so. Contact us for advice.
The creditor may work out the amount you owe using a different calculation to those shown in our example calculation. The Office of Fair Trading agrees with this way of working out the debt owed, but creditors sometimes dispute it. Contact us for advice if you want to dispute the balance.
You do not need to have actually paid the 50% to be able to terminate your agreement, although some creditors say you do. All that is necessary is for you to give notice to the creditor in writing that you are terminating the agreement.
Also, where a hire purchase agreement contains a separate subsidiary agreement for insurance products (for example, for payment protection insurance, a guarantee or warranty), it is not necessary to pay off this agreement before terminating the hire purchase agreement.
Some creditors try to charge you for collecting the goods from you after the agreement has been terminated. It appears that this is not allowed under the Consumer Credit Act 1974. If asked to pay an additional charge, you can complain to your trading standards department or contact us for advice.
Your agreement may say that you have to return the goods to your original supplier or somewhere similar like an auction house. If this is the case, you should not be asked to return the goods further away than is reasonable on the grounds of cost and distance.
If you return the goods, the account should be recorded as settled on your credit reference file if there is no balance still owed. Your creditor may 'flag' the voluntary termination. This should not effect your credit rating as long as your payments were up to date.
Ending your hire-purchase agreement does not end a subsidiary insurance agreement. You will remain liable to pay it.
The creditor ends the agreement
If you fall behind on the agreement, the creditor can terminate the agreement in writing. They must send you a ‘default notice’ under the Consumer Credit Act 1974. They will then order you to return the goods.
The default notice tells you what payments are outstanding and gives you a date by which to make up the arrears. If you cannot pay the arrears within the time specified, the whole balance may then automatically become payable and the agreement terminated. However, some agreements require notice to be sent to you by the creditor before the agreement is terminated.
Where a creditor terminates an agreement and repossesses the hire purchase goods you will usually have to pay the full amount owed on the original hire purchase agreement, minus what you have paid and minus the amount the creditor gets back from selling the goods. The ‘option to purchase fee’ is also deducted. The Example agreement in a later section of the fact sheet might be helpful.
What happens once the goods have been returned?
Once the goods have gone back to the creditor they can try to recover any balance still owed by you. You can treat the debt as an ordinary credit debt and make an offer of payment using your budget. Use our budget tool to make a budget if you have not got one.
See our fact sheet:
If the creditor does not accept your offer, they can sue you in the county court for the balance.
If you dispute the balance the creditor says you owe, then it is important to write to the creditor and tell them. You may have to put a defence in when they send you the county court claim form.
If you put in a defence there will be a hearing at the county court where the District Judge will make the decision about how much you owe. They may decide that you owe less than the creditor has claimed. You will then have a county court judgment which you offer to pay in instalments that you can afford.
You can complain to the Financial Ombudsman Service about how a lender or debt collection agency has behaved when dealing with your account. You will have to follow the lender’s complaints procedure first. You can only complain about events that happen from April 2007 onwards. See the next section Useful contacts for details of the Financial Ombudsman Service.
See our fact sheet:
If you have a hire purchase or conditional sale agreement and you are not sure what to do, contact us for advice. It would be helpful if you have your credit agreement and any default notice with you when you call.
Financial Conduct Authority
How the amount you owe can differ
- Total amount payable under the HP agreement = £4,000
- Amount already paid (deposit + instalments) = £1,600
- Arrears ('sums due') = £200
- Damages for failure to take reasonable care of goods = £250
- Value/sale proceeds of goods = £900
- 'Option to purchase' fee = £5
Where you terminate / end the agreement
| 50% of amount repayable
|YOU WILL OWE
|| £650 |
Creditor ends the agreement
|Total amount payable under the HP agreement
|Amount already paid
|'Option to purchase' fee
|YOU WILL OWE
Sample hire purchase agreement