What is a Hire Purchase Agreement? Is it Different from Condition Sale?

Purchase Agreement

Hire Purchase (HP) agreement is referred to as borrowing goods from an organization. It’s not a simple type of borrowing as there are no fictitious goods involved. When the time of repayment comes, you have to pay in full. According to the agreement, instalments are also available. 

On the other hand, you have to take good care of the goods so that they can stay intact. You Must not sell or dispose of the goods without the lender’s permission. In doing so, it might be recorded as a criminal offence. In case, you cannot make the payments in time, then the lender has every right to take away the goods.

How is it different from Condition Sale?

Hire Purchase is not different from Condition Sale. It’s a certain type of agreement that includes several conditions. Obviously, the goods that you hire don’t belong to you. So, you have to pay the entire agreed payment, else the borrowed goods will be taken away from you. 

Hire Purchase Agreement — Key Features

The Hire Purchase agreement has some of its key features that you should know. All of them are given below: 

  • In the case of assets, you can purchase them.
  • The principal money that you pay, against the asset, is fully secured.
  • You have to pay the money according to the written agreement.
  • You have to pay VAT and other additional amounts so that no issue occurs in the future.

Moreover, you will be given some options to select the payment option. Always select a type of payment that you think is secure. In case, you want to return the asset, then state that in the agreement. 

Hire Purchase Agreement — Working Procedure

There are basically two types of working procedure of the Hire Purchase agreement — One is manual and the other is the automatic process.


In the manual procedure, the company executives, from where you are taking the Hire Purchase agreement will contact you. On the other hand, chats on text messages will also do the job. After that, you have to choose an item. Read and sign the agreement, and have to abide by all the terms and conditions. 


The Hire Purchase agreement organization will invite you to create an account through their online portal. Read all the details and get a brief idea. After that, you have to choose a category of items that you are interested in. If you proceed with this step on a mobile application, then the application algorithm will try to match your desired find. After that, select one option and it will be booked automatically. Either you can go and bring the item or accept a home delivery. 

What are its Advantages?

Now, let’s have a look at the advantages that you can get from the Hire Purchase agreement. They are here as follows:

  • The funding that you provide against the goods is safe and sound.
  • Hire Purchase is available in near about every equipment purchase.
  • You can keep the hired goods permanently at the end of the last instalment payment.

Keeping the goods on a permanent basis should be your decision. You can keep it as well as release it. Keeping the asset will be helpful for you if that item has a good monetary value. 

What are the Disadvantages?

Apart from the advantages, there are also disadvantages too. They are given below, so let’s check them out: 

  • Return the goods when you are unable to make the payments.
  • The item you have borrowed will be yours only when you make the final payment.
  • Your financial status will be affected along with your social status. 

Before opting for the Hire Purchase agreement, make sure you look at the advantages too. Thus, helping you to understand the risk of monetary transactions. 

Planning to end the Hire Purchase Agreement?

You can terminate the Hire Purchase agreement any time you want. This can only happen when the goods are no longer of any use to you. If you have paid less than half of the total agreed amount, then there is a chance that you might have to pay some more amount according to the agreement. 

In case, you have paid more than half of the entire amount, then you don’t have to pay anything further, just terminate the agreement. If you are willing to get some refund, it’s not at all available. On having any type of confusion, never forget to check the original credit agreement. 

The Lender’s Role in Repossessing

If the lender wants, he/she can end the agreement at once. This will only happen when you are not keeping up the correct pace with the payment. First, the lender will send you a court notice, insisting you make the payments. If you still pay late, then your hired goods will be taken away by the lender. This is known as repossessing. 

In order to repossess your goods, the lender will need a Court Order. The repossessing also occurs when you have paid less in the last instalment. In such cases, have a look at the agreement. You will be able to see the number of instalments that you have to give. After gathering the goods from you, an auction will be held by the lender to fulfil the agreed amount. 

With the help of the auction, the lender will sell the goods and retrieve the unpaid money. Furthermore, the lender will also retrieve the court payment and other expenses that have been already made. When you are feeling that the lender might make an attempt to collect the goods for your incomplete payment, feel free to take some advice from the experts. 

Possible Issues that may arise

After accepting the Hire Purchase agreement, obviously, you will get the goods for use, but there are several potential risks. Eager to know what they are? Follow the points that are given below. 

  • Shortage of money resulting in the discontinuation of payments.
  • Payment defaults and you have to give away the goods.
  • To make the payments, you might have to sell the car.

Under the Consumer Credit Act 1974, having paid more than the half amount, then you have the right to stop the payment. This can only take place when you have already fulfilled the purpose, just return it and the agreement will end.

What is Payment Protection Insurance?

Hire Purchase or Conditional Sale Agreement can include Payment Protection Insurance (PPI). In case your health condition is not good, the insurance will pay for you. On the cancellation of the agreement, you have to end the insurance as well. Doing it separately will be a good idea. To make the cancellation successful, always provide writing to the insurance company.