Buying a car on hire purchase

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Buying a car on hire purchase

After buying a house, the most expensive purchase a consumer is likely to make is a car, whether it be new or second hand. There are many credit options available.

Hire purchase is a type of credit agreement. In short, you hire the car from a finance company until you make your final payment. The last payment includes a 'option to purchase' fee. After you have paid this, you own the car.

Your questions answered

I bought the car at the garage, so surely the garage sold me the car?

• Although you have been to the garage and filled in all the forms at the garage, the law says that you bought the car from the finance company, not the garage. The garage sells the car to the finance company, who then hire it to you. You have all the documents, e.g. registered keeper's documents etc. but the car belongs to the finance company.

If there is a problem with the car, who do I go to, the garage or the finance company?

• Under the law, your legal contract is with the finance company. Although it may be more practical to deal with the garage over faults, you should keep the finance company informed at all times.

What happens if I don't pay the finance company?

• If you do not pay, the finance company will repossess the car. If you have paid less than one-third of the total owing under the Hire Purchase Agreement, the finance company can come and repossess the car straight away.

What if I have paid more than one-third of the payments?

• If so, the law says the goods are 'protected'. The finance company will need a Court Order to repossess the car unless you agree to the repossession yourself.

What happens if the car is repossessed?

• The finance company will sell the car, usually at auction, and you will have to pay all the remaining money.

But could I not get a much better price selling the car myself?

• Maybe, but you do not own the car, therefore you have no legal right to sell it. The finance company can sell it through an auction or to a garage for less than the market value.

I'm finding the payments a struggle and want to sell the car - can I do this?

• No. Not without specific permission from the finance company. They are the legal owners. If you do get permission to sell the car, the finance company are still entitled to all the outstanding money on the credit deal.

If I can't sell the car what can I do?

• You have the right to terminate the agreement at any time. If you terminate, then you are required to pay half the amount on the agreement and give the car back to the finance company.

What if I have paid more than half?

• Providing you are not in arrears with any payments then you will not have to pay any more. But you should note that you may be charged for any outstanding repairs that the car requires.

Do I need to work these figures out myself?

• No. The figures will be on the documents you signed at the start of the agreement.

I'm sure I've made payments that total more than half on the agreement, but the finance company disagrees - why is this?

• You have to pay half the cost of the car. Interest charges do not count. For example, if the car cost £4,000 with monthly payments of £200 (£150 for the car and £50 interest) - 10 payments = £2,000, but only £1,500 towards the car, therefore you have not yet paid half the cost of the car.

I've come in to some money - can I pay off the HP early?

• Yes. It is called early settlement. You should be entitled to a reduction in the interest you have to pay.

How to record a complaint against a trader


Alternatively, you can complete the following form and submit direct to Trading Standards:

• Consumer Complaint Reporting Form (PDF - 604kb)

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