Debt Problems and HP

HP is generally used for car sales, and the main difference between HP and a regular credit agreement is that you're not actually the owner of the goods until the agreement has been paid off.

This is important because it means you can't sell on the car - as it won't be legally yours to sell! In fact, if you did sell it without express written permission of your HP lender, it could be a criminal offence. Furthermore, if you fall behind with your HP payments, the creditor can repossess your car or other HP item.

If you fall behind on HP payments, look at your agreement for a box entitled 'repossession - your rights' which will detail the sum you'd need to pay to prevent the creditor from retrieving the goods. This should be equal to a third of the agreement's amount payable. if you've already paid over a third of this sum, your car is 'protected' and the lender will have to go to court to seek a repossession order - they can't simply turn up and snatch them! In fact, were they do to this, if you've paid back a third or more of the HP agreement amount already, you'd be entitled to have this sum refunded in full.

If you've paid less than a third of the full repayment amount when you experience difficulties, all is not lost. The creditor needs a court order or your consent before they can reclaim the car. (unless it's parked on the road - the item needs to be in your possession to be safe - eg: garage or drive. Speak to an expert for more guidance on this.)

If the creditor decides to go to court to get a repossession order, you may still get to keep the car if you can prove your ability to pay back the debt fully in reasonable instalments. You need to show good will here and pay off as much as you can as a priority. If you've only paid less than a third of the outstanding amount, you can ask the creditor to accept a repayment plan - most likely to be accepted if it covers the monthly instalments plus a proportion of the outstanding arrears each month. Alternatively you could seek a 'time order' from the court if your financial difficulties are temporary - to reduce the monthly instalment and/or extend the HP repayment duration to give you some breathing space. Be realistic, however, if you can't realistically afford to keep paying for the car, you'd be better seeking a way to end the HP agreement.

To end it, you can end the agreement and return the car voluntarily, or let the creditor do so, and formally repossess the goods - but the route chosen will impact the final amount owed, so seek advice from the creditor or a specialist debt advisor. If you terminate the HP agreement voluntarily and return the car, you are only obliged to pay up to half the total sum payable in the agreement, with adjustments. There may be also damages for any wear and tear on the car, and arrears payments. Be sure to tell the creditor in writing if you voluntarily terminate the account.