Hire purchase termination rights outline what the creditor and debtor are allowed to do to end a hire purchase agreement, sometimes called a conditional sale. When purchasing a car, a hire purchase (HP) allows the buyer to pay a deposit upfront and pay the rest over a specific timeframe. The buyer does not have to buy the car outright but will be subject to paying the interest rate of the hire purchase. After the final payment is made, the buyer then owns the car.

Hire Purchase or Conditional Sale Agreements

The most common use of a hire purchase or conditional sale agreement is with the sale of vehicles, although it used with furniture or white goods. This type of agreement is different from regular credit agreements because ownership of the vehicle, or other product, does not happen until the agreement has been paid in full.

If the buyer does not continue making payments, the creditor can repossess the goods. With credit agreements, you own the goods at the time the credit was received. The creditor in this situation cannot repossess the goods and can only request that payments be made as listed in the agreement.

The hire purchase or conditional sales agreement has a box labeled "Repossession." The details of your rights will be listed here, including how much you need to pay to prevent the creditor from repossessing the goods without the need for a court order if you fall behind on your payments. The amount is normally one-third of the total amount payable under the agreement.

Pros and Cons of Hire Purchase Agreements

The pros of using a hire purchase agreement include the following:

  • Flexible repayment terms.
  • Low deposit amounts at the time of purchase.
  • Fixed interest rates.
  • For some, the ability to return the car part way through the repayment period, based on how much as been paid.
  • No final lump sum when the agreement ends.

The cons of using a hire purchase agreement include the following:

  • Ownership doesn't exist until the final payment is made.
  • If payments can't be made, the vehicle or goods can be repossessed.
  • The monthly payment is dependent on the deposit amount and the length of the agreement.
  • The selection of dealerships and/or manufacturers will be limited.
  • Short-term deals can be costly.

Thirds Rule

The Thirds Rule means that when a third or more of the total amount due is paid, the goods become "protected goods." If non-payment occurs at this point, the person or entity who is the creditor must receive an order from the court system stating that the goods must be returned. If you cannot pay, you can agree to the repossession. After the third has been paid, the creditor cannot show up and take the goods without the order. If the creditor does repossess without an order, you are entitled to a refund of the money you have paid under the agreement.

For goods like furniture or electrical goods, the creditor must obtain a court order to remove the goods from the premises regardless of the total amount paid. The creditor cannot enter or remove property from private land or inside a home. Under the law, the premise also includes a garage and driveway.

If the goods are repossessed, they are usually sold at auction. If the auction sale price doesn't cover the remaining debt, the buyer is responsible for paying back what remains. If money is owed, the creditor may take court action to ensure they receive the money.

Terminating a Hire Purchase Agreement

If the buyer needs to end the agreement, there are two options:

  • Terminate the agreement and voluntarily return the goods.
  • Have the creditor terminate the agreement, then repossess the goods.

How the agreement is terminated will affect the final amount owed when the agreement ends. If the buyer terminates the agreement and returns the goods voluntarily, the amount that must be paid should be up to half of the amount payable listed on the agreement minus any amount paid. If any dues are outstanding, those will have to be paid.

If the buyer voluntarily terminates the agreement, it must be presented to the creditor in writing. If it is not sent in writing, the creditor will not see it as voluntary, and the 50 percent liability limit will not be given. Copies of the termination letter should be saved for future reference if the termination comes into question.

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