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i The advice on this page applies to anyone with personal debts taken out in the UK.

Hire purchase and conditional sale debts. How to deal with arrears

Hire purchase (HP) is a type of finance agreement used to buy motor vehicles and household goods such as furniture or appliances. HP is also known as conditional sale, and your agreement may use either term.

HP differs from other types of finance, because you don’t own the goods until the last payment has been made. If you miss payments, the HP creditor can take the goods back.

As soon as the last payment is made, the goods become yours.

I’m struggling to make my payments

If you’re finding it difficult to make your payments, contact the hire purchase company and let them know, they might agree to:

  • Reduce or stop the interest on your debts
  • Change your payment schedule, you could get longer to pay the money back or they could give you smaller amount to pay
  • Pause or reduce your payments
  • Work with you to make a new payment plan

The company should explain how your new agreements will work. For example, if you reduce your monthly payments it may take you longer to pay back the amount owed.

Payment protection insurance (PPI)

Check if your hire purchase or conditional sale agreement includes Payment Protection Insurance. You may be able to make a claim for the insurance depending on the circumstances.

Hire purchase arrears

If you miss payments to a HP agreement, your creditor will contact you. They may let you repay the arrears over time, or extend the agreement.

If you don’t pay back the arrears, your creditor will usually issue a default notice after around three months. After they’ve issued the default notice, they can take action to repossess the goods.

If you’re struggling to pay back HP arrears and you want to keep the goods, contact our debt helpline (freephone, including mobiles). We can help you work out what you can afford, and discuss your options to see if you can keep the HP goods.

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Can bailiffs take my car if it's on HP?

Bailiffs can only take goods that belong to you. This means they’re not allowed to take goods bought through hire purchase agreements because they still belong to the lender at this point. Find out more about what bailiffs can take.

Can I sell goods on hire purchase?

Goods on HP don’t belong to you until you’ve made the last payment.

This means they’re not yours to sell, so you’re breaking the law if you do this, and the creditor may take criminal action against you.

Vehicles on HP are all recorded on a database called the HP Index which anyone can check before they buy a vehicle. This means if you try to sell a vehicle on HP, no dealership will buy it from you.

What are hire purchase balloon payments?

Some HP vehicle agreements have a large ‘balloon’ payment at the end. The balloon payment means the regular monthly payments will be lower.

For example, £5,000 over 4 years is 48 monthly payments of £104.17. But the same amount with a balloon payment might be 47 payments of £85.17 and a final payment of £1,000.

The advantages of a balloon payment are:

  • If you’ve paid more than half of the amount owed under the agreement, you’ll usually have nothing more to pay if you end it yourself
  • If you’ve paid less than half of the agreement, there’ll be a ‘shortfall’ to pay after you’ve ended the agreement. This will be half of the amount payable under the agreement minus the payments you’ve already made. There may also be some extra charges if the goods are damaged
  • The regular monthly payments are lower
  • If you don’t want to keep the vehicle, you can return it instead of paying the balloon payment and there’ll be nothing more to pay

But if you want to keep the vehicle, you’ll need to pay the balloon payment, so try to save up towards this before the agreement ends. If you can’t afford to pay it, your HP creditor may let you pay the balloon payment in instalments rather than trying to repossess the vehicle.

Repossessing hire purchase goods

If your HP agreement has defaulted, your creditor can take action to get the goods back. How they do this depends on how much you’ve paid and where the goods are kept.

Your creditor should only repossess goods if they can’t get the money back any other way. If you’re struggling to make regular payments, let your creditor know. They might agree to make changes to your payment plan until your situation improves.

You creditor can repossess the goods without a court order if:

  • You’ve paid less than a third of the amount owed under the HP agreement, and
  • The goods are not kept in your home or on private land

If you’ve paid more than a third of the agreement, or if the goods are stored on private land or inside your home, your creditor will need a court order before they can repossess them.

This means household items like furniture and electrical goods can’t usually be repossessed without a court order, but motor vehicles often can be.

If the goods are repossessed, your creditor will usually sell them at auction. If this doesn’t raise enough money to pay off the remaining debt, you will still owe them money. They may take further court action to get the money back from you.

If your creditor starts court action, you’ll receive some court forms in the post. If this happens, contact us for advice.

Ending a hire purchase agreement yourself

If you can’t afford to pay your HP and you don’t want to keep the goods, you can end the agreement yourself at any time as long as the creditor hasn’t issued a default notice. If you end the agreement, you won’t get back any of the payments you’ve already made.

To end the agreement, write to the creditor. Send the letter by recorded mail and keep a copy for yourself. You have to ask for this in writing, and if you ask by phone the creditor doesn’t have to agree.

The creditor will reply in writing, telling you how they want you to return the goods. They may come to collect the goods or ask you to take them to a local shop or dealership. They can’t ask you to travel a long distance to return the goods.

There may be something left to pay after you’ve returned the goods. The more you’ve already paid, the less there’ll be left to pay afterwards. Normally, if you've paid more than half the payments due under the agreement, there'll be nothing left to pay.

If there's a shortfall, you can treat this like any other non-priority debt, like a credit card or loan, and offer to pay it back in instalments at an amount you can afford.

The way a shortfall is worked out after goods are returned means you’ll almost always owe a smaller amount than if the account defaults and the creditor ends the agreement. This means that if you know you won’t be able to afford the payments, it’s better to act soon and cancel the agreement before any arrears build up.

Some HP agreements are not regulated by the Consumer Credit Act, and you don’t have a right to end these agreements early. This mainly affects older, high-value agreements or agreements taken out by a business.

Help with hire purchase debt

If you’re struggling to pay your HP agreement, please contact us. We’ll be able to advise you on the best way to deal with your debts. You can use our online debt advice tool or call us to speak to an advisor.