A hire-purchase (HP) agreement is often offered when you buy a car or furniture.
Unlike instalment credit, you don’t own the goods until you’ve made the final payment. This means that, in effect, you’re hiring the goods with an option to buy them.
When you’ve made all the payments to the finance company, you can opt to buy the goods by paying a final ‘option to purchase’ fee.
This might be a small nominal amount or something much larger. These larger payments are often known as ‘balloon’ payments.
‘Conditional sale’ agreements work in a similar way – ownership is conditional on making all the payments. If you don’t make the payments, the company can take the goods back.
In both cases, you can’t sell the goods until the agreement has come to an end. And if you don’t keep up your repayments the goods can be repossessed.
However, if you’ve paid at least a third of the total amount payable, the company can’t seize the goods without getting a court order first.