A Hire Purchase (HP) agreement is a type of financial arrangement where you agree to pay for an item in parts or a percentage at a time. It is commonly used to buy vehicles but can include white goods, such as a fridge or cooker.

You use the item as you make payments, but you don't own it until you have paid the final instalment. This is different from other forms of buying on credit because the creditor owns the goods until you’ve paid in full, which reduces the lender's risk and can affect your rights as a consumer.

Typically, HP agreements start with a deposit, usually between 10% and 50% of the total purchase price.

You then make monthly payments over a period agreed upon in advance (usually 1-5 years). These payments cover the remaining cost of the item plus interest.

Ownership of the goods passes to you only after the final payment is made.

Interest Rates may be higher than other types of loans because the lender retains ownership of the goods until the agreement ends.

The amount you pay each month is fixed, which helps with budgeting but means you need to be sure you can afford the payments before you enter into the agreement.

Under this rule, once you have paid one-third of the total price of the goods, the creditor cannot repossess the goods without a court order.

This provides some security for you as the purchaser, ensuring that the creditor must take legal steps to repossess the goods if necessary, giving you time to potentially negotiate or settle any disputes.

If you have paid 50% or more of the total HP agreement cost, you have the right to end the agreement and return the goods. This is sometimes referred to as "voluntary termination."

This allows you to return the item and walk away without having to make any further payments, although you will not get back the money already paid and it might affect your credit rating.

You might have to pay something if you the property returned is not in a good condition or breaches the agreement in any way.

Whether it's a car or another high-cost item, select the one that best meets your needs.

Choose a dealer or retailer that offers HP as a financing option.

Discuss the deposit amount, monthly payment, interest rate, and length of the term. Don't hesitate to shop around or negotiate to get the best deal.

RCarefully read the terms and conditions before signing anything. Make sure you understand your rights under the one-third and 50% rules.

Hire Purchase can provide much needed access to credit even when your crefit score os low. It provides a degree of certainty and you get to own the goods at the ned of the agreement. The list below shows the advantages:

• Easy to arrange and accessible, often directly through the retailer.

• Fixed costs aid budgeting.

• No large upfront payment needed apart from the deposit.

Taking out hire purchase is a contract and there is only a short cooling off period of 14 days. This is part of your consumer rights under the Consumer Credit Act 1974 and is reinforced by the Consumer Contracts Regulations 2013.

• You don’t own the goods until the final payment is made.

• Potentially higher overall cost due to interest.

• If you fail to keep up with payments, you risk losing the goods.

Voluntary surrender of goods under a Hire Purchase (HP) agreement is a process where you voluntarily give back the goods you financed due to inability to continue making the required payments. This is different from voluntary termination, which is based on having paid off a specific portion of the agreement (usually 50%). 

Voluntary surrender can be initiated at any point during the HP agreement if you find that you can no longer afford the repayments.

To initiate voluntary surrender, you should inform the finance company in writing, stating your intent to return the goods and cease the agreement. It’s advisable to keep all correspondence as a record.

When returning the goods, they should be in good condition, taking into account normal wear and tear. The goods will be inspected, and any damage beyond normal wear and tear may result in additional charges, which can be claimed by the finance company to cover the loss in value.

Voluntarily surrendering the goods does not mean you are free from financial obligation. The finance company will sell the goods, often at auction, and if the sale amount does not cover the outstanding balance of the loan and associated costs (like early termination fees and the costs of sale), you may still owe the difference. This is known as a "deficiency balance."

Voluntary surrender will likely be recorded on your credit report and can negatively impact your credit rating, making future borrowing more difficult or expensive.

If you’ve paid 50% of the total amount due under the HP agreement, you might be eligible to return the goods and terminate the agreement without further payments, under the "50% rule."

Consider refinancing the HP agreement to lower the monthly payments.

Some finance companies might offer a temporary payment holiday, reducing or suspending payments for a short period.