Warning:selling hire purchasegoodsYou cannot sell the goods yourself without thecreditor’s written permission. If you sell the goodswithout permission it can be a criminal offence.

Extra advice:check your agreementIf you are not sure what type of agreement youhave, check your contract. Contact us foradvice.

Important:extra help because ofcoronavirusThe Financial Conduct Authority (FCA) have toldlenders to give people extra help if they cannotafford payments for cars or rent­to­ownagreements because of coronavirus. See theExtra help if you are affected by coronavirussection below.

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 thelender;

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 inon our website.

What is hire purchase or conditional sale?Nowadays hire purchase and conditional sale agreementsusually relate to cars, although they are sometimes seen forfurniture and white goods. They are different from ordinarycredit agreements because under hire purchase and conditionalsale agreements you do not own the goods until you have paidoff the agreement.

With hire purchase and conditional sale agreements, if you donot keep up with the payments, it is possible for a creditor torepossess the goods. With ordinary credit agreements, thegoods you buy belong to you from the time you take out thecredit. The lender cannot take the goods back. They can only ask you to pay the money you owe under the agreement.

From April 2008, new agreements will normally be covered bythe Consumer Credit Act 1974 even if you have borrowedmore than £25,000, (unless the agreement is for businesspurposes).

Some hire purchase agreements may give you extra contractualrights, for example, you may be able to return the goods for freeafter a certain amount of time. Creditors may use other terms todescribe these kinds of hire purchase agreement such as‘Personal Contract Purchase’ (PCP) or ‘rent to own’. Check youragreement to see if you have any additional rights.

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July 2020

England & Wales edition

Hire purchase and conditional sale

Fact sheet no. 16 EW Hire purchase and conditional sale

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Extra advice:working out what youhave paidIf you want to work out if you have paid one thirdor more, remember to include any deposit or partexchange as well as the instalments that youhave paid.

If you cannot afford to payIf you fall behind with your payments on a hire purchase orconditional sale agreement, the creditor may be able torepossess the goods. Look at your agreement. There will be abox headed Repossession: your rights telling you how muchyou need to have paid to stop the creditor taking the goodsback without a court order (or your consent). This should beone third of the total amount payable under the agreement.

If you have paid a third or more of the total amount payable, thegoods become ‘protected goods’ and the creditor must go tocourt for an order for the goods to be returned unless youconsent to the repossession. They cannot just come round andremove 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 needan 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 athird) then it is at risk of being ‘snatched back’. The law is not clear about the recovery of a car from a car park.

Making an offer to payUse your budget to work out what you can afford to pay.

If you can afford to meet the contractual monthly payments, try to also pay something towards the arrears.

If you cannot afford to meet the contractual monthly payments, pay as much as you can afford instead.

Always send a copy of your budget summary, so your creditor can see how you have worked out your offer and that youare trying to pay as much as you can.

If the creditor has to go to courtThere 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 youcan pay the debt back in reasonable instalments.

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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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 court willprobably grant the creditor an order telling you toreturn the goods. If the court has already made areturn order and you still wish to keep the goods,it is possible to apply for the order to besuspended. Contact us for advice.

If you have paid a third or more of the total amount payableunder the agreement, or if the goods are kept on your premisesand you do not consent to their repossession, the creditor willask the court to send you a claim form asking for the goods tobe returned. This is called an application for a ‘return order’.Notice of a hearing date with a District Judge is included. Thishearing should be in your local county court hearing centre.

There will be a court form (N9C) with the claim that you shouldfill in and send back to the court within 14 days. You must fillthis in if you want the court to suspend the return of goodsorder and allow you to keep the goods. You need to offer to paythe debt back in monthly instalments you can afford.

Where you need to keep the goods, it is important to treat thisdebt as a priority over ordinary credit debts and offer as muchas you can afford.

Send the form back to the court, not the creditor. The court willsend 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 goahead.

If you have paid less than a thirdWhere you have not paid a third of the total amount payable under the agreement and if you want to keep the goods, youshould ask the creditor to agree to a payment arrangement with you. The creditor is most likely to accept if you can affordthe 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 andonly for a short time. In certain circumstances you may be able to go to court and ask to pay less than the full monthlyinstalment 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 orderunder 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 maymake a time order even if your financial problems are long term.

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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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.

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

However, if you have a drop in your income that is permanent,you may no longer be able to afford to make more than tokenpayments to the lender. If this is the case then you may have todecide whether you can realistically afford to keep the goodsany more. If you decide that you cannot afford the goods youneed to decide the best way of ending the agreement.

Amount owed if the agreement endsIf you have to decide whether to end a hire purchase or conditional sale 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.

If you end the agreementYou have the right to terminate and end your agreement under Section 99 of the Consumer Credit Act 1974 at anytime before your last instalment is due, although you will have lost the right to terminate your agreement if the creditorhas 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 topay up to half of the total amount payable under the agreement, minus sums that you have paid. You will also have topay any 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.

In addition you will also owe any damages if you have failed totake reasonable care of the goods (over and above normalwear and tear). The creditor might argue that there will be anextra charge for damage or unusual wear and tear. It isimportant 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 youare terminating and ending your agreement. If you do notterminate in writing, the creditor will not treat it as a voluntarytermination and you will not be able to benefit from the 50% limiton your liability. Keep a copy of the letter of your termination incase you need proof of this later. See the Terminate a hirepurchase agreement sample letter, which you may want to adapt and send to your creditor when terminating youragreement.

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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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 do so.Contact us for advice.

Extra advice:ending the agreementEnding your hire purchase agreement does notend a subsidiary insurance agreement. You willremain liable to pay it.

The creditor may work out the amount you owe using a differentcalculation to those shown in our example calculation. Contactus for advice if you want to dispute the balance.

You do not need to have actually paid the 50% to be able toterminate your agreement, although some creditors say you do.All that is necessary is for you to give notice to the creditor inwriting that you are terminating the agreement.

Also, where a hire purchase agreement contains a separatesubsidiary agreement for insurance products (for example, forpayment protection insurance, a guarantee or warranty), it isnot necessary to pay off this agreement before terminating thehire purchase agreement.

Some creditors try to charge you for collecting the goods fromyou after the agreement has been terminated. It appears thatthis is not allowed under the Consumer Credit Act 1974. Ifasked to pay an additional charge, you can complain to yourtrading standards department or contact us for advice.

Your agreement may say that you have to return the goods toyour original supplier or somewhere similar like an auctionhouse. If this is the case, you should not be asked to return thegoods further away than is reasonable on the grounds of costand distance.

If you return the goods, the account should be recorded as settled on your credit reference file if there is no balance stillowed. Your creditor may 'flag' the voluntary termination. This should not effect your credit rating as long as yourpayments were up to date.

The creditor ends the agreementIf you fall behind on the agreement, the creditor can terminate the agreement in writing. They must send you a ‘defaultnotice’ 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 youcannot pay the arrears within the time specified, the whole balance may then automatically become payable and theagreement terminated. However, some agreements require notice to be sent to you by the creditor before the agreementis terminated.

Where a creditor terminates an agreement and repossesses the hire purchase goods you will usually have to pay the fullamount owed on the original hire purchase agreement, minus what you have paid and minus the amount the creditor getsback from selling the goods. The ‘option to purchase fee’ is also deducted. The Example agreement in a later section ofthe fact sheet might be helpful.

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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

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 thedebt as an ordinary credit debt and make an offer of payment using your budget. Use our budget tool to make a budgetif you have not got one.

If the creditor does not accept your offer, they can sue you inthe county court for the balance.

If you dispute the balance the creditor says you owe, then it isimportant to write to the creditor and tell them. You may have toput a defence in when they send you the county court claimform.

If you put in a defence there will be a hearing at the county court where the District Judge will make the decision abouthow much you owe. They may decide that you owe less than the creditor has claimed. You will then have a county courtjudgment which you offer to pay in instalments that you can afford.

Personal contract purchase (PCP) agreementsSome creditors use the term personal contract purchase (PCP) agreement to describe hire purchase agreements forvehicles. PCP agreements often give you additional contractual rights, for example, you may be able to hand the vehicleback rather than make the final payment (sometimes called a balloon payment, because it is usually a lot bigger than yournormal monthly payments). Check your agreement to see what it says.

Keeping up with payments and handing the vehicle back in at the end may be cheaper than choosing to end theagreement early yourself. If you choose to end the agreement early yourself, you normally have to pay 50% of the totalamount payable. See the earlier section If you end the agreement.

Depending on how big the final payment is, you may find that you will not pay more than a third of the total amountpayable before the end of the agreement. This means that if you miss payments, your creditor may be able torepossess the vehicle without getting a court order first. See the earlier section If you have paid less than athird.

ComplaintsYou can complain to the Financial Ombudsman Service about how a lender or debt collection agency has behaved whendealing with your account. You will have to follow the lender’s complaints procedure first. You can only complain aboutevents that happen from April 2007 onwards. See the next section Useful contacts for details of the FinancialOmbudsman Service.

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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.

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See our fact sheet:Complaining about yourlender.

If you have a hire purchase or conditional sale agreement andyou are not sure what to do, contact us for advice. It would behelpful if you have your credit agreement and any default noticewith you when you call.

Extra help if you are affected by coronavirusThe Financial Conduct Authority (FCA) have told lenders to give people extra help if they cannot afford payments forcars or for rent­to­own agreements because of coronavirus. To count as rent to own, an agreement cannot be for acar or business purposes, and payments must be due more than once a month.

If you were up to date until coronavirus caused you temporary difficulty in paying, you should be given a three­monthpayment break if this is the best option for you. You may still be asked to make a token payment of £1.

This should not affect your credit files unless you need more help, for example, if interest on the payments needs to befrozen. Potential lenders may still be able to find out that you didn’t make these payments as originally agreed in otherways though, for example, by looking at your bank statements.

If you have already been given a three­month payment break, you can ask for another payment break of up to threemonths.

If your agreement isn’t for something essential and you’re struggling with other bills and debts, think about whether youwould be best off terminating your agreement. See the earlier section If you end the agreement. Some PCP andrent to own agreements may give you extra options which could be cheaper, so check what your agreement allows.

Your lender should not normally repossess goods if they know that you need to use them and are only experiencingtemporary financial difficulty because of coronavirus.

If your agreement is ending, you normally need to make a final payment or hand the vehicle or goods back. If this is goingto cause any problems for you contact us for advice.

Useful contactsFinancial Conduct AuthorityPhone: 0800 111 6768www.fca.org.uk 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 helplinePhone: 0808 223 1133www.adviceguide.org.uk

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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.

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Freephone 0808 808 4000www.nationaldebtline.org Page 7 of 10

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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 8 of 10

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

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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 9 of 10

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. Money Advice Trust Registered Charity Number 1099506. A company limited byguarantee. Registered in England and Wales (Number 4741583). Registered office 21 Garlick Hill, London, WC4V 2AU. © CopyrightNational Debtline 2001.

July 2020

Hire purchase and conditional sale England & Wales edition

Fact sheet no. 16 EW Hire purchase and conditional sale

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 10 of 10