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Hire purchase agreements

28 September 2011

Hire purchase agreements are a mechanism whereby the hirer (debtor) can choose to buy the goods for an additional payment at the end of the term of the hire. Alternatively he can return the goods to the owner (creditor). The hirer uses the goods during the period of hire but legal ownership remains with the owner until all money due under the agreement has been paid.

Various problems can arise in relation to hire purchase agreements. These are a few examples of those we most often advise on:

  • Enforceability of hire purchase agreements:

If the hirer is struggling to meet his debts, it is important for both parties to consider their options carefully. Some hire purchase agreements may be unenforceable under strict consumer credit legislation. Hirer and owner should both check whether it is actually enforceable.

  • Repossession – protection for hirers

Assuming an agreement is enforceable, legislation gives additional protection to the hirer. If he has paid less than one third of the total sum due, then goods can be repossessed without a court order if they are not on his own property. However, under the Consumer Credit Act 1974, once the hirer has paid more than a third of the total debt, the owner will need either the hirer’s permission or a court order to repossess the goods. Unauthorised repossession will terminate the agreement and the hirer can recover all the money he has paid to the owner and claim compensation for loss of use of the goods.

  • How to terminate agreements

In some circumstances where a hirer has repaid more than half of the total sum due, he may be entitled to terminate the agreement. Consumers may be able to do so at any point before opting to buy the goods, providing they are up-to-date with their payments and hand back the goods in a satisfactory condition. This option is only open to a hirer as long as the owner has not terminated the agreement.

  • Dispute resolution and litigation advice

Where a hirer is facing payment difficulties, this may be an option to consider depending on the value of the agreement.

How we can help

We always aim to respond swiftly, which is particularly important in issues such as these since action may need to be taken rapidly. If you are a hirer facing challenging hire purchase payments or an owner confronted with likely default by a debtor, contact Paul Gordon

Paul Gordon LLB
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