What is hire purchase?

Hire purchase means buying goods on credit, with the goods themselves being security for the loan. You
usually pay a deposit of some of the purchase price and borrow the rest. You don't own the goods until
you've paid the final instalment.

Hire-purchase agreements must comply with the Hire Purchase Act 1971. Whenever interest is charged
on the deal, the sale must also comply with the Credit Contracts Act 1981.

Shops usually arrange their hire-purchase deals using outside finance companies and your payments go
to the finance company not the shop.

In this report we use the term "seller" to mean either the shop or the finance company, whichever is
relevant.

What you must be told

Once you have agreed to buy on hire purchase from a shop, you and the seller sign a written agreement
called a "conditional purchase agreement".

You must receive a copy of the agreement within 10 days of the day you signed. If you are not given a
copy straight away, you must be given a sales docket giving the details.

This agreement must tell you:

 The frequency and amount of each payment, and the total number of payments.
 The amount you are borrowing. This is shown on the agreement as TOTAL A.
 The total cost of credit. This is shown as TOTAL B. It is the total interest plus any booking fees
and other charges.
 The additional cost of the hire-purchase agreement over a cash sale.
 The finance rate. This takes into account interest charged plus most fees, and expresses the total
as a percentage per annum of the amount borrowed.

Some fees can be exempt from the finance rate, so look at the dollar cost of the interest plus all fees.

All of this information is important - read it and understand it before you sign.

Insurance
The seller may insist that the goods be insured. You pay for this. Such insurance is good protection for
you. If the goods are stolen, you will still have to pay off what you owe on the hire-purchase agreement. If
the goods were uninsured this will leave you with nothing to show for it all.

Usually a seller will be quite happy to have the goods covered by any existing contents policy. If you have
contents insurance, take along proof of this when you go shopping for hire purchase. Make sure your
policy covers goods on hire purchase.
Sellers also often require that you have repayment insurance and that you pay for it. This insurance gives
limited cover if you lose your source of income because of illness, accident or redundancy. Some policies
will also pay out if you die.

Repayment insurance should only be considered to cover illness and redundancy. If you have life
insurance, you won't need repayment insurance to cover the chance of your dying. Also, ACC means you
shouldn't need it to cover accidents.

Cancellation
Your rights of cancellation differ depending on the situation:

 If you have not taken the goods home, you have three working days from the time you receive the
credit contract in which to cancel the credit and goods.
 If you have taken the goods home and have a copy of the credit agreement, you can cancel the
credit part of the deal within three working days by informing the seller in writing. However, you
must pay the cash price of the goods within 15 working days. You can ask the shop to take the
goods back, but it does not have to agree.
 If you have an interest-free deal with no fees, your payments consist solely of the cash price.
Here, you have no three-day right to cancel unless the agreement stipulates it.

Repaying early
If the cash price of the product is less than $15,000, you can pay off the hire purchase early at any time
and be entitled to a reduction in the interest and some of the fees you had agreed to pay. This is called a
rebate.

If you have any doubt as to whether your rebate has been correctly calculated, seek advice.

Trouble making payments

If you are having trouble making the payments, contact the firm providing the money and explain the
situation. Options include:

 Spread the payments over a longer time. You will pay more interest, but the regular payments will
be less.
 Ask someone else to take over the goods and the payments. You do not pay any more money,
but the seller will have to agree to the new arrangement.
 Ask the seller to take back the goods and cancel the agreement. The seller will then sell the
goods and must try to get the best price for them. Within 10 days of the sale you must be given a
written statement showing what you owe or what your refund will be.

Alternatively, the seller can decide to value the goods at 80 percent of the original cash price. If so, the
seller has 14 days to give you a statement showing what you owe or what your refund is.

Before embarking on all this, try to rearrange your budget so you can continue to make the payments. If
that is just not possible, contact the seller immediately. Do not just stop paying - the goods will end up
being repossessed.

Repossession
If you break the agreement, the goods may be repossessed. Your rights relating to repossession are set
out in the Credit (Repossession) Act 1997.

For more information

Goods sold on hire purchase must comply with the Consumer Guarantees Act and the Fair Trading Act.

Goods sold on hire purchase with interest must comply with the Credit Contracts Act 1981.

Taking it further
If you have a complaint about an aspect of a hire-purchase agreement, speak to the seller first.