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Your rights when you take out a loan

Hire purchase (HP) and conditional sale (CS) loans are types of loan that you can take out to buy expensive items, eg furniture or cars. You take out the loan over a certain time, eg for 12 months, and pay back the money in instalments (usually each month).

HP and CS loans are different from other types of loans because:

• you don’t own the item until you have paid back the loan in full plus interest
• you can’t change or sell the item without the finance company’s permission – for example you can’t paint furniture a different colour
• the finance company can take the item back (repossess it) if you don’t make your payments
• you may have to pay for any damage you cause to the item during the loan period – for example if you break the TV’s remote control

HP loans before 01 February 2011

If you took out a HP loan before 01 February 2011, you may have to pay a fee at the end of the loan so you can own your item. This fee is known as a ‘balloon payment’ and can be high.

If the finance company didn't tell you in writing that you needed to pay a balloon payment, you may be able to challenge it in court.

• Disputes when buying goods and services - ways to resolve a complaint

Before you sign a contract

Compare the total cost of HP and CS loans by checking the APR (annual percentage rate of charge). APR is what the interest rate of the loan would be each year if it included all the other charges you have to pay, eg admin fees.

This means you can use APR to compare the cost of different loans. For example, a loan may have an interest rate of 10 per cent, but other charges add another 3 per cent. Its APR would be 13 per cent.

The contract must tell you in plain language:

• how much you have to pay, including the APR
• how much each payment will be and when you have to make them
• how you repay the loan
• when you stop making payments
• any fees you have to pay, eg for setting up the loan

If the contract doesn’t contain this information, the lender may need to go to court to make you pay.

If you have any questions about the contract, ask your finance company. Don't sign anything you don't understand.

You can get advice about contracts from Consumer Direct, the government funded consumer advice service.

• Contact Consumer Direct

• Disputes when buying goods and services - ways to resolve a complaint

Your right to change your mind

You can withdraw from your HP or CS loan for any reason within 14 days of signing the contract. You must do this in writing.

If you withdraw from the loan, you still have to buy the goods, eg by getting a loan from elsewhere.

But if you sign up to a HP or CS loan by telephone, online or by post, you usually get 14 days to cancel the agreement. This would let you hand back the goods and not have to repay any money.

• Signing a credit agreement – an overview

Unfair terms in contracts

If your contract has unfair terms in it, you may not be legally bound by it. For example, if your contract says the lender can ask you to pay back the full amount of the loan if you miss one payment.

If a term is unfair, a court can decide you don’t have to follow the term or can cancel the contract (see link below).

• Unfair terms in contracts

Ending your hire purchase agreement early

If you pay back your HP or CS loan early, you will pay less interest and this will reduce the cost of the item you’re paying for.

If you want to pay off your loan early, contact your finance company to find out how much this will cost.

If you took out insurance with your HP or CS loan, you will usually have to pay this off as well. For example if you took out payment protection insurance to cover your payments in case you became ill.

Check the terms and conditions of your insurance policy to see what you need to do.

If you no longer want the item

If you have a HP loan and no longer want the item, you can end the agreement early by returning the item and paying half of the loan. You can't do this if you have a CS loan.

If your item has a fault

If you paid for an item using a HP or CS loan and it turns out to be faulty, you should complain to the finance company.

• How to complain

• Create a complaints letter from a template

If you can’t make the monthly payments

If you have problems paying back your loan, find out what your options are by following the link below.  

• Hire purchase and debt (money, tax and benefits section)

More useful links

• Consumer rights - an introduction

• Returning faulty items

• Buying a service - your consumer rights

• How to find a reliable business