Hire Purchase or Loan

There is a lot of difference when you choose to buy something with the help of a loan and when you do it on hire purchase basis. In the former case, the ownership passes to you but in the later case you are just in possession and not a legal owner. It means that a person who has bought a car on hire purchase cannot sell it. Simple enough, he is not an owner of the car and, therefore, he has no such right.

Let us take an example.

You want to buy furniture and you go to a lender asking for an unsecured loan. Any furniture or whatever that you buy with the loan amount is legally yours and, in the event of failure to repay, the lender cannot ask you to return the goods. Yes, the lender always has legal remedies available to him for getting back the loan amount. In case of hire purchase, the creditor can ask you to return the goods if you don’t make regular payments.

A hire purchase creates a ‘debt’ and you have to pay it. Once you fully pay your debt then only ownership passes to you. As far as reclaiming of goods under the hire purchase agreement is concerned, there may arise two situations. If you have paid more than one-third of the total debt, the creditor has to go through the County Courts. But, in case you have paid less than one-third of your debt, a creditor only needs a court order to remove goods from your property. Even this court order can be dispensed away if the property is lying in a public place. It means that if you have taken a car on hire purchase, the creditor can remove it from the street without court’s order. So, there is a lot of difference between purchasing a car through unsecured loan and through hire purchase agreement.

Remedies in case of non-repayments

In case of loan agreement, the lender can take legal remedies in case of non-repayment of loan. In case of hire purchase, the creditor can take you to the court for non-payment of debt. There is a specific procedure to be followed by both the creditor and the purchaser. If creditor wants to get back the goods, he is required to obtain a ‘Return Order’ from the court.

Terminating agreements

A loan agreement comes to an end when you repay all your installments and other dues. You can repay before the loan period agreed in the loan agreement. This may or may not involve early repayment penalty. In case of hire purchase agreement, you can normally terminate it by handing back the goods to your creditor. The creditor may ask you to pay up to half of the original agreement price, irrespective of when you terminate the agreement. The hire purchase agreement contains the conditions upon which you can terminate the agreement.

So, you can now decide whether unsecured loans meet your requirements or would it be better to go for a hire purchase agreement.

Note: Law, Rules and Regulations may differ in your country. Get professional advice and ask friends who may have hire purchase experience.

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