Key Takeaways

  • A hirer in a hire-purchase agreement has the legal right to terminate the agreement early, including on grounds such as financial hardship.
  • The right to terminate usually becomes effective once at least half the total amount payable under the agreement has been paid.
  • Termination must be done in writing to qualify as voluntary and limit future liabilities.
  • Upon termination, the hirer must return the goods and may be liable for additional payments if the 50% threshold hasn’t been met.
  • Consumer protection laws and court procedures may apply, especially for repossession scenarios.

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.

Termination Due to Financial Hardship

A hirer in a hire-purchase agreement has a right to terminate the agreement due to financial hardship. Discuss the procedure for such a termination, and it typically follows this general process:

  1. Assess Eligibility for Termination
    Under most hire-purchase laws, the hirer has a right to terminate the agreement at any time. However, the extent of the hirer's financial liability depends on how much of the agreement has been paid. If 50% or more of the total amount payable under the agreement has been paid, the hirer can usually terminate with no further financial obligation beyond the return of the goods and any arrears.
  2. Notify the Creditor in Writing
    The termination must be communicated in writing. This letter should clearly state the hirer's intention to terminate under the contractual or statutory right to voluntary termination due to financial hardship. It is advisable to include the agreement reference number and request written confirmation from the creditor.
  3. Return the Goods
    Once the notice is accepted, the hirer is typically required to return the goods in a reasonable condition. In some cases, the creditor may arrange for collection, though additional fees might apply.
  4. Settle Remaining Balance if Applicable
    If the hirer has not yet paid 50% of the total hire-purchase price, they may be required to pay the difference between what has been paid and the 50% threshold. Arrears and any damage-related costs may also be due.
  5. Keep Documentation
    It is critical to retain all documentation—copies of the termination letter, return receipts, and payment records. These documents serve as proof of compliance in the event of a dispute.
  6. Potential Court Involvement
    If the creditor disputes the termination or the return of goods, or seeks repossession from private property after a third of the agreement is paid (in certain jurisdictions), they may need to obtain a court order.

This procedure aligns with the consumer protections built into hire-purchase legislation, such as the UK’s Consumer Credit Act, and similar frameworks in other common law countries, which aim to balance the interests of both the hirer and the creditor in financially distressing situations​.

Frequently Asked Questions

  1. Can a hirer terminate a hire-purchase agreement early due to financial hardship?
    Yes, a hirer has the legal right to terminate a hire-purchase agreement early, especially if financial hardship prevents continued payments.
  2. How much must a hirer pay before they can terminate the agreement?
    The hirer usually needs to have paid at least 50% of the total agreement value to avoid additional payment obligations upon termination.
  3. Is written notice required to terminate a hire-purchase agreement?
    Yes, written notice is essential. Without it, the termination may not be considered voluntary, which could lead to further liabilities.
  4. What happens to the goods after termination?
    The hirer must return the goods in good condition. If the goods are damaged or missing, the hirer may be charged additional fees.
  5. Can the creditor take the goods back without a court order?
    Not if more than one-third of the total payment has been made. In such cases, the creditor must obtain a court order unless the hirer consents to repossession.

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