How to Deal with Hire Purchase Debt

WHAT IS HIRE PURCHASE/CONDITIONAL SALE?

Although people often talk about "buying on HP", Hire Purchase Agreements are quite unusual these days. Cars are the most usual goods sold under Hire Purchase or Conditional Sale Agreements. With Hire Purchase and Conditional Sale Agreements, you do not own the goods until you have paid the credit agreement off. This means they are not the same as ordinary credit agreements.

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 offense.

On 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.

WHAT IF I CANNOT AFFORD TO PAY?

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 telling you how much you need to have paid to stop the creditor taking the goods back without a court order. This should be a third of the total amount payable under the agreement.

If you have paid a third or more of the total owing, the creditor must go to court to ask for the goods back. They cannot just come round and remove them. Even if you have not paid more than a third of the agreement, the creditor will need an order from the court to remove the goods from "any premises" they are on.

This appears to include your garage or drive but not a car park or roadside. If your car is parked on the road, or in a public car park, then it would be at risk.

WHAT IS THE PROCEDURE IF THE CREDITOR HAS TO GO TO COURT BEFORE THEY CAN 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 the debt back in reasonable instalments.

If you have a third or more of the total payable under the agreement, 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.

There will be form 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 at home. You need to offer to pay the debt back in monthly instalments you can afford. It is important to treat this debt as a priority over ordinary credit debts and offer as much as you can.

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.

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 now 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.

WHAT IF I HAVE PAID LESS THAN A THIRD AND THE CREDITOR WANTS THE GOODS BACK?

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.

HOW MUCH WILL I OWE IF THE AGREEMENT ENDS?

If you have to decide whether to end a Hire Purchase or Conditional Sale agreement there are two options:

* return the goods voluntarily;

or

* let the creditor 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 AGREEMENT

You have the right to terminate your agreement under Section 99 of the Consumer Credit Act 1974

If you decide to end the agreement voluntarily and hand back the goods to the creditor, you should only have to pay up to half of the total figure on the original agreement, minus what you have already paid, plus any arrears from missed instalments, and damages to the goods (in certain circumstances). It is very important that you tell your creditor in writing that you are ending your agreement voluntarily. If you do not do this, then your creditor does not have to act on your request. Keep a copy of your letter in case you need proof. We have included a sample letter in Appendi x III, you may want to adapt to send to your creditor when ending the agreement.

Warning: If you have a Default Notice sent to you by the creditor because you are behind with the payments on your agreement, this may mean you will have lost the right to end the agreement voluntarily and return the goods yourself. It depends upon your agreement. Your creditor may have called in or "terminated" the agreement when the Default Notice runs out. Some agreements say another notice to terminate the agreement has to be sent to you after the Default Notice has run out.

THE CREDITOR ENDS THE AGREEMENT

If you fall behind on the agreement, the creditor will 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. The whole balance may then automatically become payable and the agreement terminated. Some agreements need another notice to be sent to you before the agreement is terminated. You may have to pay the full amount owed on the original 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. Most agreements will include a clause telling you that you must take reasonable care of the goods. This means 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.

Some creditors try to charge you for collecting the goods after the agreement has been terminated. It appears that this is not allowed under the Consumer Credit Act. If asked to pay an additional charge, you can complain to your Trading Standards Department. Your agreement may say that you have to return the goods to your original supplier or somewhere similar. You should not be asked to return the goods further away than is reasonable on the grounds of cost and distance.

WHAT HAPPENS ONCE THE CAR HAS BEEN RETURNED?

Once the car has gone back to the creditor, they can try to recover any balance still owed from you. You can treat the debt as an ordinary credit debt and make an offer of payment using the information pack and your personal budget. 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. This may be because they claim you damaged the goods and you want to dispute this. You may have to put a defence in when they send you the County Court Claim Form.

If you put in a defense, 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 can offer to pay in instalments that you can afford.

Also the creditor may work out the amount you owe using a different calculation to those shown in Appendix I. The Office of Fair Trading agree with this way of working out the debt owed but creditors often dispute it.

APPENDIX 1

EXAMPLE AGREEMENT HOW THE AMOUNT YOU OWE CAN DIFFER:

Total price on Hire Purchase Agreement £4,000

Amount you have paid off £1,600

Arrears (unpaid instalments) £200

Damage to goods £250

Value/sale proceeds of goods £900

"Option to Purchase fee" £5

IF YOU END THE AGREEMENT

Half the Hire Purchase price £2,000

Amount you have paid off minus £1,600

Equals £400

Damage to goods plus £250

YOU WILL OWE £650

CREDITOR ENDS AGREEMENT

Total Hire Purchase price £4,000

Amount you have paid minus £1,600

Sale proceeds minus £900

"Option to purchase fee" minus £5

YOU WILL OWE £1,495

APPENDIX 3

Company's Address

Dear Sir/Madam

Re: Account Number (Car Make/Model and Registration Number) Voluntary Termination

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 of the Consumer Credit Act 1974.

(Optional - add details of your circumstances and financial situation)

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

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

Please confirm receipt of this request by telephone/fax to me/us on (your telephone number or fax number).

Yours faithfully

Your Name

Author
Michael Sherriff
Michael has written 100's of articles relating to credit and credit repair as well as writing a UK top selling ebook "UK Credit Secrets" with the latest edition being updated for 2005. UK Credit Secrets

---

Errors on Your Credit Report: What You Should Do

There are times when you may be turned down for... Read More

Borrowing on a Credit Card

One of the easiest ways to borrow money of a... Read More

Credit Card Balance Transfers Can Help You Stop Putting Money Down The Drain

As you probably know, interest rates are at all time... Read More

Convenience Can Be Costly

You've just opened your credit card bill and attached to... Read More

Collection Agencies: What Do They Do?

Collection agencies are businesses that collect past-due bills and accounts... Read More

10 Simple Steps to Manage Your Credit

By far the greatest invention the banks have ever come... Read More

Useful Tips on Using Credit Cards

Here are some useful tips on using credit cards. Whether... Read More

Fight Credit Card Fraud with Common Sense

By now, you have undoubtedly heard of credit card fraud,... Read More

Using Credit Cards Wisely

"I think money was stolen from my card" or "I... Read More

Like It Or Not, You Have A Score To Settle! Part 1

Just when most people finish with school and can stop... Read More

Credit Scores and Loan Applications

Keep Your Credit History Clean - Remove A Negative Credit... Read More

Bad Checks, Bounced Checks, & NSF Checks

Negotiable instruments like checks and drafts have become an indispensable... Read More

Credit Cards: What is the Universal Default Clause?

Most people who carry major credit cards are well aware... Read More

Like It Or Not, You Have A Score To Settle!

Like It Or Not, You Have A Score To Settle!... Read More

Save Money and Lower your Payments by Improving or Repairing Your Credit

Having a better credit score not only represents easier access... Read More

Finding Reputable Credit Card Companies

You're interested in getting the best credit cards for your... Read More

Tips for Choosing a Credit Card Company

Credit Cards are essential for any consumer today. However, when... Read More

Credit Cards and How To Choose Them:

It may seem like a simple question but its important... Read More

Credit Repair Companies and Credit Counseling

Let's be crystal clear, right up front. Paying someone to... Read More

How To Eliminate Credit Card Debt

There is almost nothing more troublesome than having too much... Read More

Identity Theft Exploding: Here?s How You Can Avoid Becoming A Victim

Americans are more concerned about identity theft than unemployment or... Read More

Home Loans ? Repair Your Credit Before You Buy

Before you take out a home loan or make any... Read More

Small Business Credit Cards

So what do you look for when applying for a... Read More

Pitfalls of the Credit Industry

The credit industry if rife with pitfalls. If you have... Read More

The FICO Score Misconceptions

There are many misconceptions about credit scores out there. There... Read More

Credit Card Traps: How To Spot Them On The Spot!

They arrive in your mail - a conspicuous looking mail... Read More

What is a Credit Card?

A credit card allows you to buy things even though... Read More

How to Improve Your Credit Rating

So you got into debt, had problems but you got... Read More

My Student Credit Card Adventure

And some practical advice too!My first credit card?I remember my... Read More

Which Citi Mastercard Is Right For You?

You've decided to apply for a Citi MasterCard, but with... Read More

Start Building Credit Fast!

There are a couple of reasons for this. You can... Read More

Annual Credit Report and Free Annual Credit Report

Getting an annual credit report review has been the advice... Read More

How To Save Money On Credit Cards

Some credit cards offer a cash advance option. But how... Read More