Hire purchase is an agreement whereby a person hires goods for a period of time by paying instalments, and can own the goods at the end of the agreement if all instalments are paid.
Hire purchase agreements usually last between two and five years, the most common last three years. Under a hire purchase agreement, the consumer does not actually own the goods until the last installment is paid, although he or she has full use of the goods throughout the repayment period.
Hire purchase agreements can be held with banks, building societies, finance companies and certain retail stores, for example, garages. The store or garage is not actually providing the loan. It is acting as an agent for a finance company and earns commission from the finance company for arranging the loan.
It is advisable to read a hire purchase contract very carefully before committing yourself to any agreement.
A hire purchase agreement is drawn up and signed by the hirer (the consumer) and on behalf of the owner (the lending institution). If there is a retailer involved, e.g., a garage, it also signs the agreement and supplies the goods in question.
Most of the car loans offered by garages are hire purchase loans. Consumers can also be offered hire purchase loans when buying furniture, computer equipment or electrical goods.
The hire purchase agreement states:
Unless all of these requirements are contained in the agreement, the agreement itself may not be enforceable.
The fees and charges on hire purchase agreements vary, but may include:
Any balloon payment charged on a hire purchase loan - while it is not an extra charge - has the effect of postponing part of the costs until after the loan. This means that in the earlier months and years, consumers are paying less off their loan that they would for a bank or a credit union loan.
A consumer (the hirer) can terminate the agreement at any time by giving notice in writing to the owner of the goods (the finance house). Consumers should be aware that breaking a hire purchase contract before its normal end date usually involves penalties. You can either:
Further information is available at the National Consumer Agency's website.
The finance house can only repossess the goods under certain circumstances. If the consumer has not yet paid off one-third of the total hire purchase cost, the owner can repossess the goods at any time without taking legal action against the consumer.
However, if the consumer has paid one-third or more off the total hire purchase cost, the owner cannot repossess the goods without taking legal proceedings. Any deposit that is paid at the start of the agreement or the value of any trade-in for example, is taken into account in calculating one third of the cost.
If this one-third rule is breached by the owner, the consumer is entitled to end the agreement and can seek a refund of all payments made. You can read more about the one-third rule on the National Consumer Agency’s website.
Anything you buy under a hire purchase agreement must comply with the Sale of Goods and Supply of Services Act, 1980 and be:
If goods hired under a hire purchase agreement are or become faulty, both the retailer and the owner (finance company) are responsible. A consumer can claim against either party in this situation. A claim cannot be made against the manufacturer of the goods.
If a consumer returns defective goods, he or she is entitled to a refund of any installments paid as consumer rights in this situation are the same as if the goods were purchased outright.
A guarantee under a hire purchase agreement applies in the same way as if goods were bought outright. The manufacturer makes the guarantee. If there is a fault with the goods, the consumer can choose to have the goods repaired under the guarantee or to seek a full refund or exchange from the owner.
Under a hire purchase plan the consumer has a duty to take reasonable care of the hired goods. If the goods are damaged by the consumer and returned to the owner or finance company they are entitled to send a bill for repairs to the consumer.
The cost of a hire purchase agreement is the difference between the cash price of the goods being hired and the full hire purchase price. If the cash price of a car is €12,000 and the hire purchase price is €17,000, then the hire purchase cost is €5,000, i.e., the extra cost involved to hire the car for a period of time (and perhaps eventually to own it) rather than to buy it outright for cash.
Different lending institutions have different hire purchase costs. Some will quote an APR (Annual Percentage Rate). This can help consumers to compare hire purchase costs. It may be misleading to compare a hire purchase APR with that of a normal bank or credit union loan, as a consumer is paying for the hire of the goods and does not own them until the last installment of the agreement has been paid.
Consumers who would like independent information or help in understanding any of the terms and conditions of their hire purchase (or any other loan) contract are encouraged to contact the National Consumer Agency. Apart from information and support, the Agency will help to ensure that any complaints are properly handled by the finance companies they regulate.
You can contact their consumer help-line on lo-call 1890 432 432 or visit their website.
For specific consumer complaints against a finance company in relation to a hire purchase agreement, consumers should address their complaint in the first instance to the finance company. If they are not satisfied with the outcome, a formal complaint can be made to the Financial Ombudsman. The Ombudsman has the power to award compensation to the consumer in cases where their rights have been breached, or where there is evidence of unfair treatment.
A consumer is not obliged to accept the solution recommended by the Ombudsman. Anyone who remains dissatisfied after pursuing these complaint procedures is entitled to seek redress by taking legal action against the finance company.
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If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 8pm) or you can visit your local Citizens Information Centre.