Home Consumer's voice How does hire purchase work?

How does hire purchase work?

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If you buy goods on credit and pay for some time and default and they are repossessed is the contract terminated?

Or as the consumer you continue paying? If you continue paying do they return the goods?

Unfortunately, if this happens you have very few rights to protect you.

Firstly, you should know one key fact about hire purchase. Until you pay the final installment the goods you think you’ve bought in fact still belong to the store.

That sofa, hi-fi or computer that you thought was your property wasn’t at all.

That’s why it’s called “hire” purchase. You were just hiring it.

Then there’s the issue of what happens if you stop paying the instalments.

It doesn’t matter why you did so, whether you lost your job, had unplanned expenses or spent the money on beer, whatever the reason might be, the store will want their money and if you fail to pay them they are entitled to come to your house and take their property back.

They don’t need court order to do this because you said they could repossess the goods when you signed the hire purchase agreement.

Even then, when the goods have gone it’s almost certain that you still owe them money.

The repossessed goods will probably have been sold but only for a fraction of the amount you planned to pay for them.

The item is no second-hand, has probably suffered some normal “wear and tear” and can no longer be sold as new.

It’s also because the stores often sell the property to their own staff as a perk.

Yes, the amount they recover will be deducted from your outstanding balance but I guarantee it won’t cover the full amount.

You’ll still be left owing a debt, a debt for something you don’t even have any longer.

Once they add on the various penalties and debt collection fees you can end up owing more than the cash price of the thing you bought.

Sometimes you can even owe more than the full hire purchase price.

And guess what? You have absolutely no protection against this. Firstly because you voluntarily signed a hire purchase agreement that allowed the store to do all this and secondly because the law that governs these purchases,the Hire Purchase Act, almost certainly doesn’t cover you.

That’s because the Act only covers purchases below P4,000 and almost all are way more than that.

This is a law that urgently needs to be updated!