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Warning:selling hire-purchasegoodsThis means you cannot sell the goods yourselfwithout the creditor’s written permission. If yousell the goods without permission it can be acriminal offence.

Extra advice:check your agreementIf you are not sure what type of agreement youhave, check your contract. If it is a hirepurchaseor conditionalsale agreement it will look like theexample at the end of the fact sheet. Contact usfor advice.

Extra advice:working out what youhave paidIf you want to work out if you have paid a third ormore remember to include any deposit or partexchange as well as the instalments that youhave paid.

What is hire purchase or conditional sale?Nowadays hirepurchase and conditionalsale agreements usually relateto cars although they are sometimes seen for furniture and white goods.They are different from ordinary credit agreements because under hirepurchase and conditionalsale agreements you do not own the goodsuntil you have paid off the agreement.

With hirepurchase and conditionalsale agreements, if you do not keepup with the payments it is possible for a creditor to repossess the goods.With ordinary credit agreements, the goods you buy belong to you fromthe 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.

If you are not sure what type of agreement you have, check yourcontract. If it is a hirepurchase or conditionalsale agreement it will looklike the example at the end of the fact sheet. Contact us for advice.

From April 2008, new agreements will normally be covered by theConsumer Credit Act 1974 even if you have borrowed more than£25,000, (unless the loan is for business purposes).

What if I cannot afford to pay?If you fall behind with your payments on a hirepurchase or conditionalsale agreement, the creditor may be able to repossess the goods. Lookat your agreement. There will be a box Repossession: your rightstelling you how much you need to have paid to stop the creditor takingthe goods back without a court order (or your consent). This should bea third of the total amount payable under the agreement.

If you have paid a third or more of the total amount payable, the goodsbecome ‘protected goods’ and the creditor must go to court for an orderfor 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 areentitled to a refund of all the money you have paid under the agreement.

Freephone0808 808 4000www.nationaldebtline.org

April 2014

England & Wales edition

Hire purchase and conditional sale

Fact sheet no. 16

My Money Steps is our free, independent and confidential online debt advice service. My Money Steps will help you workout a budget and give you a personalised action plan setting out practical steps to deal with your debts.

www.mymoneysteps.org

Freephone 0808 808 4000www.nationaldebtline.org Page 1 of 9

Extra advice:attend the hearingYou must attend the hearing. The court willdecide at the hearing whether they will suspendthe return order and what monthly instalmentsyou should pay from then on. If you do not fill inthe admission form there will be a hearinganyway. If you don’t go to the hearing the courtwill probably grant the creditor an order tellingyou to return the goods. If the court has alreadymade a return order and you still wish to keep thegoods, it is possible to apply for the order to besuspended. Contact us for advice.

Also, even if you have not paid more than a third of the total amount payable under the agreement, the creditor will need an orderfrom 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

What is the procedure if the creditor has to go to court before theycan get the goods back?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 thedebt back in reasonable instalments.

If you have paid a third or more off the amount payable under theagreement or the goods are kept on your premises and you do notconsent to their repossession, the creditor will ask the court to send youa claim form asking for the goods to be returned. This is called anapplication for a ‘return order’. Notice of a hearing date with a districtjudge is included. This hearing should be in your local county courthearing centre.

There will be a court form (N9C) with the claim that you should fill in andsend back to the court within 14 days. You must fill this in if you want thecourt to suspend the return of goods order and allow you to keep thegoods. You need to offer to pay the debt back in monthly instalments youcan afford.

Where you need to keep the goods, it is important to treat this debt as apriority 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.

What if I have paid less than a third and the creditor wants the goodsback?Where you have not paid a third of the total amount payable under the agreement and if you want to keep the goods, you shouldask the creditor to agree to a payment arrangement with you. The creditor is most likely to accept if you can afford the full monthlyinstalments 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 ashort time. In certain circumstances you may be able to go to court and ask to pay less than the full monthly instalment and extendthe 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 theConsumer Credit Act 1974.

April 2014

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16




http://hmctsformfinder.justice.gov.uk/courtfinder/forms/n009c-eng.pdf

See our fact sheet:Time order: hire purchase orconditional sale.

Extra advice:default noticesA creditor may send you a default notice if youare behind with payments. When the time on thedefault notice has run out you may have lost theright to end the agreement voluntarily. It dependson what your agreement says. Contact us foradvice.

The court may be willing to make a time order for a specific period if you have temporary financial difficulties. They may make atime order even if your financial problems are long term.

However, if you have a drop in your income that is permanent you may nolonger 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 canrealistically afford to keep the goods any more. If you decide that youcannot afford the goods you need to decide the best way of ending theagreement.

How much will I owe if the agreementends?If you have to decide whether to end a hirepurchase or conditionalsale agreement, there are two options:

terminate and end the agreement and return the goods voluntarily; or

let the creditor terminate and end your agreement and repossess the goods.

There can be a difference in the amount you end up owing depending upon how the agreement is ended.

You end the agreementYou have the right to terminate and end your agreement under Section 99 of the Consumer Credit Act 1974 at any timebefore your last instalment is due, although you will have lost the right to terminate your agreement if the creditor has alreadyterminated 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 upto half of the total amount payable under the agreement, minus sums that you have paid and sums that are due. Sums that youhave paid include any deposit plus the instalments that you have paid. Sums due are any arrears or missed payments due atthe time of termination.

The one half or 50% figure is stated on the agreement in the box headed Termination: your rights.

In addition you will also owe any damages if you have failed to takereasonable care of the goods (over and above normal wear and tear).The creditor might argue that there will be an extra charge for damage orunusual wear and tear. It is important to look at any charges to see if theyare reasonable. See the Sample hirepurchase agreement in thelater section of the fact sheet.

It is very important that you tell your creditor in writing that you areterminating and ending your agreement. If you do not terminate in writingthe creditor will not treat it as a voluntary termination and you will not beable to benefit from the 50% limit on your liability. Keep a copy of theletter of your termination in case you need proof of thislater. See the Terminate a hirepurchase agreement sample letter at the end of the fact sheet which you may want to adaptand send to your creditor when terminating your agreement.

April 2014


Fact sheet no. 16




http://factsheets.moneyadvicetrust.org/EW/factsheets/Pages/06C%20EW%20Time%20order%20-%20hire%20purchase%20or%20conditional%20sale/Default.aspx

Information:notices and statementsFrom October 2008, your lender has to sendyou a yearly statement about your agreement. They also have to send you an arrears notice, ifyou miss two payments, along with an informationsheet telling you where to go for help. If yourlender does not follow these rules, they may notbe able to take any more action against you, oradd interest and charges until they doso. Contact us for advice.

Extra advice:ending the agreementEnding your hirepurchase agreement doesnot end a subsidiary insurance agreement. Youwill remain liable to pay it.

The creditor may work out the amount you owe using a differentcalculation to those shown in our example calculation. The Office of FairTrading agrees with this way of working out the debt owed but creditorssometimes dispute it. Contact us for advice if you want to dispute thebalance.

You do not need to have actually paid the 50% to be able to terminateyour agreement, although some creditors say you do. All that isnecessary is for you to give notice to the creditor in writing that you areterminating the agreement.

Also, where a hirepurchase agreement contains a separate subsidiaryagreement for insurance products (for example, for payment protectioninsurance, a guarantee or warranty), it is not necessary to pay off thisagreement before terminating the hire purchase agreement.

Some creditors try to charge you for collecting the goods from you afterthe agreement has been terminated. It appears that this is not allowedunder the Consumer Credit Act. If asked to pay an additional charge,you can complain to your trading standards department or contact usfor advice.

Your agreement may say that you have to return the goods to your original supplier or somewhere similar like an auction house. Ifthis is the case, you should not be asked to return the goods further away than is reasonable on the grounds of cost anddistance.

The creditor ends the agreementIf 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 cannotpay the arrears within the time specified, the whole balance may then automatically become payable and the agreementterminated. 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 hirepurchase goods you will usually have to pay the full amountowed on the original hirepurchase agreement, minus what you have paid and minus the amount the creditor gets back fromselling the goods. The ‘option to purchase fee’ is also deducted. The Example agreement in a later section of the fact sheetmight be helpful.

April 2014


Fact sheet no. 16




See our fact sheet:Payment offer - what to doif a creditor refuses.

See our fact sheet:Complaining about yourlender.

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 asan ordinary credit debt and make an offer of payment using your budget Use our budget tool Your budget to make a budget ifyou have not got one.

If the creditor does not accept your offer, they can sue you in the countycourt for the balance.

If you dispute the balance the creditor says you owe, then it is importantto write to the creditor and tell them. You may have to put a defence inwhen they send you the county court claim form.

If you put in a defence there will be a hearing at the county court wherethe district judge will make the decision about how much you owe. They may decide that you owe less than the creditor hasclaimed. You will then have a countycourt judgment which you offer to pay in instalments that you can afford.

ComplaintsYou can complain to the Financial Ombudsman Service about how a lender or debt collection agency has behaved when dealingwith your account. You will have to follow the lender’s complaints procedure first. You can only complain about events that happenfrom April 2007 onwards. See the later section Useful contacts for details of the Financial Ombudsman Service.

If you have a hirepurchase or conditionalsale agreement and you arenot sure what to do, contact us for advice. It would be helpful if youhave your credit agreement and any default notice with you when youcall.

Useful contactsFinancial Conduct AuthorityPhone: 0800 111 6768Email: [email protected] Financial Ombudsman ServicePhone: 0800 023 4567 or 0300 123 9123www.financialombudsman.org.uk

Finance & Leasing Association Phone: 020 7836 6511www.fla.org.uk

Citizens Advice consumer servicePhone: 0845 404 0506www.adviceguide.org.uk

April 2014


Fact sheet no. 16




http://factsheets.moneyadvicetrust.org/EW/factsheets/Pages/14%20EW%20Payment%20offer%20-%20what%20to%20do%20if%20a%20creditor%20refuses/Default.aspx

http://factsheets.moneyadvicetrust.org/EW/factsheets/Pages/34%20EW%20Complaining%20about%20your%20lender/Default.aspx

mailto:[email protected]

http://www.fca.org.uk/

http://www.financial-ombudsman.org.uk/

http://www.fla.org.uk/

http://www.adviceguide.org.uk/

Example agreementHow 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 £2,000

LESS

Sums paid £1,600

Sums due £200

= £200

PLUS

Arrears £200

Damages £250

YOU WILL OWE £650

Creditor ends the agreement

Total amount payable under the HP agreement £4,000

LESS

Amount already paid £1,600

Sale proceeds £900

'Option to purchase' fee £5

YOU WILL OWE £1,495

April 2014


Fact sheet no. 16




Sample hire-purchase agreement

April 2014


Fact sheet no. 16




Remember:keep a copyKeep a copy of all the letters you send to yourcreditors.

Terminate a hire-purchase agreement sample letterWrite your own letter

To be used when you want to terminate a hire-purchase agreement with yourcreditor.

(Your home address)Date: ____________

Dear Sir/Madam

Voluntary Termination of Agreement

Account No: ____________________________

Car make/model/registration no: ____________________________

I am/we are writing to notify you that I am/we are exercising my/our right to terminate the above agreement under Section 99 ofthe Consumer Credit Act 1974.

I/we understand that I shall/we will be liable to you for the amount calculated under the formula in Section 100 of the ConsumerCredit Act 1974.

Please send me/us details of how the vehicle can be returned to you.

Please confirm receipt of this request by phone, fax or email to me/us on (insert your phone number, fax number or emailaddress).

I/we look forward to hearing from you.

Yours faithfully

(Your signature)

April 2014


Fact sheet no. 16




https://ndlprivate.nationaldebtline.org/EW/sampleletters/Pages/default.aspx

National Debtline endeavour to keep our fact sheets as up-to-date as possible, however, we cannot be held responsible for changesin legislation or for developments in case law since this edition of the fact sheet was issued.

National Debtline is part of the Money Advice Trust. Monday Advice Trust Registered Charity Number 1099506. A company limitedby guarantee. Registered in England and Wales (Number 4741583). Registered office 21 Garlick Hill, London, WC4V 2AU. ©Copyright National Debtline 2001.

April 2014


Fact sheet no. 16




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