Hire purchase (HP) or credit agreements are really useful when you need a new item such as furniture, a fridge or oven and don’t have the full purchase price in cash. But what happens if you can’t pay the monthly instalment on your agreement? We find out.
What is a credit agreement?
An HP agreement is a credit agreement that allows you to buy and use an item while paying it off each month. Until the item is paid off, it belongs to the credit provider, who is the company you have a credit agreement with. When you have paid it off, it belongs to you.
Credit agreements are subject to the National Credit Act, which makes sure consumers are treated fairly. This includes giving consumers options when they can’t pay their credit agreement instalments. We look at these below.
1. Use credit life insurance
Credit life insurance pays some or all of the amount outstanding in certain circumstances, such as if you have lost your income. This comes standard with many credit agreements so you may have credit life insurance even if you don’t know it.
If you find yourself struggling to pay your account, ask the credit provider if you have credit life insurance and find out how to claim.
2. Come to a payment arrangement with the credit provider
Many credit providers are willing to enter into arrangements to help consumers who cannot pay, such as reducing the instalment amount. You can ask your credit provider if you can make a payment arrangement. Make sure you understand all the terms and conditions, and that the new arrangement is affordable. Remember that if your instalment is reduced, you will be paying off the item for longer.
3. Return the item
The National Credit Act says you can return items bought on a credit agreement if you can no longer afford them. If you return them unused, with the original packaging usually within a time frame such as 5, 15 or 30 days, the agreement is regarded as cancelled. However, if you have used an item and return it, the credit provider is required to sell it at a fair market price and credit this amount to your account against the outstanding balance. Here’s how it works:
- You need to advise the credit provider in writing that you are returning the goods
- If they sell the item for more than you owe, you will be refunded the difference
- If the goods sell for less than you owe, you need to settle the difference in 10 days
- The seller is entitled to claim costs of the sale, such as transport, which is added to the amount you owe
4. Sell the item yourself and settle the account
You can sell the item privately and use the funds to settle your account. A private sale can be quick, and you may get a good price. But remember that whatever you get for the item, you will need to pay the full amount you owe to the credit provider. And when you sell an item or return it to the store for resale, you no longer have the item you have paid towards.
5. Debt review
Debt review reduces your payments to your creditors, making your debt more affordable. If you are struggling to pay all your accounts, it may be an option.
If you are in financial difficulty always look for a solution as soon as possible before credit providers take legal action. Avoid taking on more debt to pay off a debt, as that just adds to your financial burden and stress. Rather speak to your credit provider so you can find the best solution.