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Hire purchase and conditional sale

About hire purchase and conditional sale

This information explains what hire purchase (HP) and conditional sale agreements are. It tells you about your rights if you want to end the agreement and the lender's rights if you don’t pay.

Hire purchase

Hire purchase (HP) is a type of borrowing. It is different from other types of borrowing because you don’t own the goods until you have paid in full. Under an HP agreement, you hire the goods and then pay an agreed amount by instalments. While you are still making payments, you aren’t allowed to sell or dispose of the goods without the lender’s permission. If you do, you’ll be committing a criminal offence.

The lender may be able to repossess (take back) the goods if you fall behind with payments.

Conditional sale

Conditional sale is similar to hire purchase. The agreement usually includes the condition that the goods don’t belong to you until you’ve paid the final instalment and the lender may be able to repossess (take back) the goods if you fall behind with payments.

Your right to end a hire purchase or conditional sale agreement

You can end (terminate) a hire purchase or conditional sale agreement in writing and return the goods at any time. This can be useful if you can no longer afford the payments or you don't need the goods any more.

You will have to pay all the instalments due up to the time you end the agreement. If your payments come to less than half of the total price of the goods, you may still have some money to pay as the lender is entitled to this amount under the agreement. If you have already paid more than half of the price when you end the agreement, you can't get a refund but you usually won't have to pay any more.

If you are not sure whether you still owe anything, check the original credit agreement which should show the total price of the goods and the amount you must pay if you end the agreement. The credit agreement is the legal document you signed when you bought the goods.

Lenders sometimes say you must pay the whole amount owed under the agreement before you can end it. This is wrong. If this happens, you can get help from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

When can the lender repossess the goods

If the lender ends the agreement, for example, because you haven’t kept up with the repayments, they may be able to repossess the goods. Usually, the lender will need a court order to do this. But if you’ve paid less than one third of the total amount, they don’t need a court order. The agreement should tell you how much one third is.

The lender will sell the repossessed goods at auction and the money they get will be used to repay your debt. If there isn't enough to pay the whole amount off, you will have to pay whatever is left plus any court costs. It's worth asking the lender if you can try to sell the goods yourself as you will often get more money for them this way.

For more information about dealing with debts, in England, Wales and Northern Ireland see Help with debt. In Scotland see Help with debt.

You can get help sorting out your debts from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

What to do if you are struggling to pay

If you are struggling to keep up the repayments on a hire purchase or conditional sale agreement, it may be better for you to end the agreement yourself. This will limit the amount you owe. Once you fall behind with the repayments, the lender can end the agreement and you may end up owing more.

If you fall behind with payments and aren’t sure what to do, you can get help from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Payment protection insurance

Many hire purchase and conditional sale agreements include Payment Protection Insurance (PPI). Check whether you can make a claim under the insurance, for example to help you make payments if you are off work sick.

If you or the lender ends the hire purchase or conditional sale agreement, you may need to cancel the insurance separately as it often counts as a separate agreement. Always put your cancellation in writing.

For more information about PPI, in England and Wales see Payment Protection Insurance in Credit and debt fact sheets.

If you are not sure whether you have insurance with your HP agreement, ask an adviser, for example, at a Citizens Advice Bureau, to check your agreement for you. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Further help and information

On Adviceguide

For more information about different ways of borrowing money and getting credit, see Types of borrowing.

You may also find the following Adviceguide information helpful:

The Money Advice Service

The Money Advice Service is a free, independent service. Their website (www.moneyadviceservice.org.uk) has lots of useful information about borrowing and managing your money.

Go to their website for more information about: