Do you know the difference between a credit agreement and hire purchase?

Tuesday, 14/04/2015

Two of the most common forms of credit which are readily available to people on a tight budget are credit agreements and hire purchase (HP) agreements. It’s always worth checking out what form of legal agreement will be in place between you and the seller to ensure that you’re opting for the product that’s best for you. Discover below three key differences between the two forms of agreement which can have a major impact on how suitable they may be for your needs.

Ownership of goods

When you take out a credit agreement for items, they become yours once the sales transaction is complete. Similarly goods purchased with instalment loans belong to you once they have been paid for. In comparison an item purchased using a higher purchase agreement isn’t yours until the final instalment has been settled. This means you can’t sell or pass on the product until the repayment process is complete.

Repossession

Because goods purchased using a hire purchase agreement don’t belong to you until the repayment process is complete, the seller can potentially repossess them if you don’t keep up the required payments. This means that not only do you lose your item, you also lose any monies you have paid to date and may even incur additional charges. It's therefore absolutely imperative to ensure that the payments are kept up to date on an HP agreement.

Limited choice

Instalment loans give you quick access to a cash sum, allowing you to spend it where and how you like. This enables borrowers to take advantage of discounted products, second hand bargains and premium essential items which are on sale. HP can only be used for the stock from the seller offering the HP, significantly limiting choice.

Whilst HP can be useful in some circumstances, for many people instalment loans or a credit agreement provide the greatest level of purchasing freedom and ensure that once bought, items are yours to do with as you wish. Remember that with any form of borrowing it’s vital to ensure that you can make the necessary repayments before taking out the credit.

Payday loans are not suitable for, and would be expensive as, a means of longer term borrowing and are not appropriate if you are in financial difficulty.

Representative 1269.7% APR


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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk