Hire purchase and conditional sale debts. How to deal with arrears

I am struggling to make my hire purchase payments

You should contact the HP company and let them know. They might agree to:

• Reduce or stop the interest on your debts
• Give you more time to pay the money back
• Reduce your payments for a while
• Pause your payments for a while
• Work with you on a new payment plan

If your agreement changes, you need to know how this can affect you. Such as, if you pay less each month, it can take you longer to pay back the amount owed. And reduced payments may be recorded on your credit file.

Payment protection insurance (PPI)

Check if your hire purchase or conditional sale agreement includes Payment Protection Insurance. You may be able to make a claim for the insurance depending on the circumstances.

I have already missed hire purchase payments

If you miss payments to a HP agreement, your creditor will contact you. They may let you:

• Repay the arrears over time, or
• Extend the agreement

If you do not pay back the arrears, your creditor will usually issue a default notice. This is usually after three months.

After they have issued the default notice, they can take more action to take back the goods.

Worried about hire purchase debts?

Can bailiffs take my car if it is on HP?

Bailiffs can only take goods that belong to you. This means they cannot take goods on HP agreements because they still belong to the lender. Find out more about what bailiffs can take.

Can I sell goods on hire purchase?

Goods on HP do not belong to you until you have made the last payment.

This means they are not yours to sell.

You would be breaking the law if you did this, and the creditor could take criminal action against you.

Vehicles on HP are all recorded on a database called the HP Index which anyone can check before they buy a vehicle.

Some dealerships offer a service which help you pay off the remaining finance on the HP. This means:

• You can exit the contract legally, and
• Sell to the dealer

If you are unsure about this, please contact us for impartial advice.

What are hire purchase balloon payments?

Some HP vehicle agreements have a large ‘balloon’ payment at the end. The balloon payment means the regular monthly payments will be lower.

Such as:

• No balloon payment: £5,000 over 4 years is 48 monthly payments of £104.17
• With a balloon payment: £5,000 over 4 years could be 47 monthly payments of £85.17 and a final payment of £1,000

The benefits of a balloon payment are:

• If you have paid more than half of what you agreed to pay: You will usually have nothing more to pay if you end the agreement
• If you have paid less than half of the agreement: There will be a ‘shortfall’ to pay after you have ended the agreement
  
  • This will be half of the amount you agreed to pay minus what you have already paid
  • There may be some extra charges if the goods are damaged
• The regular monthly payments are lower
• If you do not want to keep the vehicle, you can return it instead of paying the balloon payment and there will be nothing more to pay

If you want to keep the vehicle, you will need to pay the balloon payment. Try to save up towards this before the agreement ends.

Your HP provider may let you pay the balloon payment in instalments rather than trying to take back the vehicle.

Repossessing hire purchase goods

If your HP agreement has defaulted, your creditor can take action to get the goods back. How they do this depends on:

• How much you have paid, and
• Where the goods are kept

They should only repossess goods if they cannot get the money back any other way.

If you are finding it hard to make regular payments, let your creditor know. They might agree to make changes to your payment plan until things improve.

You creditor can repossess the goods without a court order if:

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

Your creditor will need a court order before they can repossess an item if:

• You have paid more than a third of the agreement, or
• The goods are stored on private land or inside your home

This means household items cannot usually be taken without a court order. But motor vehicles often can be.

What happens when goods are repossessed?

1. Your creditor will usually sell them at auction
2. They use the profit from the auction to pay what you owe
3. If this does not raise enough money to pay off the remaining debt, you will still owe them money
4. They can take further court action to get the money back from you
5. If this happens, you will get some court forms in the post

Ending a hire purchase agreement yourself

If you cannot afford to pay your HP and you do not want to keep the goods:

• You can end the agreement at any time, but only if the creditor has not issued a default notice
• If you end the agreement, you will not get back any of the payments you already made

To end the agreement:

1. Write to the creditor by post or email
   
   • Email is cheaper, and much easier to keep track of
   • If you send the letter by post, make sure you use recorded mail and keep a copy for yourself
2. You have to ask for this in writing, and if you ask by phone the creditor does not have to agree

The creditor will reply in writing, telling you how they want you to return the goods:

• They may come to collect the goods
• They may ask you to take them to a local shop or dealership
• They cannot ask you to travel a long distance to return the goods

There may be something left to pay after you have returned the goods:

• The more you have already paid, the less there will be left to pay afterwards
• Normally, if you have paid more than half the payments due under the agreement, there will be nothing left to pay

If there is a shortfall:

• You can treat this like any other non-priority debt. Like a credit card or loan
• Offer to pay it back in instalments at an amount you can afford

The way a shortfall is worked out after goods are returned means you will almost always owe a smaller amount than if the account defaults and the creditor ends the agreement.

This means that if you know you will not be able to afford the payments, it is better to act soon and cancel the agreement before any arrears build up.

Some HP agreements are not regulated by the Consumer Credit Act, and you do not have a right to end these agreements early. This mainly affects older, high-value agreements or agreements taken out by a business.

Help with hire purchase debt

If you are struggling to pay your HP agreement, please contact us. We will be able to advise you on the best way to deal with your debts. You can use our online debt advice tool at any time of day.