QUESTION: Many persons owning household items such as refrigerators and furniture would not likely have owned them if it had not been for hire purchase. Yet, there are some negative views about it. Is hire purchase really as good as its use seems to suggest or is it a facility that consumers should avoid?

- Malcolm

PFA: A hire purchase loan is a convenient but costly way for consumers to acquire assets that have long-term value. Although the law offers much protection to consumers using this facility, they are required to act responsibly.

Hire purchase is valuable to consumers because it allows them to acquire assets with limited cash without the need to find additional security to the item whose purchase it is financing.

Hire purchase makes budgeting and cash flow management easier because, for a fixed period of time, consumers are required to make fixed and regular payments which match their cash flow.

As long as the conditions of the loan are being met, the item being financed remains in the possession of the consumer who enjoys its use although its ownership is not transferred to him until the loan has been paid in full.

Consumers who honour the conditions of the loan benefit by being able to establish a good credit rating. Considering that many persons would not normally be able to access other credit facilities, this is an opportunity that should not be squandered.

Two major disadvantages of the hire purchase arrangement are their high cost, although periodic payments may be small, and the risk of financial loss to the consumer in the event of repossession due to failure to honour the terms of the agreement.

To reduce the cost of servicing a hire purchase debt, the consumer may defer the purchase of the item and increase savings to be able to make a bigger deposit (There is the risk of prices increasing.) This may be achieved by proper planning.

The consumer may terminate a hire purchase agreement at any time by advising the hire purchase provider in writing. In one instance, the consumer may return the good voluntarily, perhaps due to challenges making the payments, and forfeit any funds already paid. This may, however, hurt his credit rating.

In the other instance, the consumer retains the use of the good and assumes ownership of it ahead of schedule by paying the outstanding principal and a portion of the interest that would have been paid if the agreement had been allowed to run its course. The terms of the agreement ultimately determine how much the consumer pays.

Repossession

The law protects the consumer in several ways. If two-thirds or more of the debt has been paid, hire purchase repossession can only take place if the consumer is in arrears for three months or more.

Before repossession can take place, the vendor has to serve notices stating that the account is in default and that he intends to repossess the item. The notice of default should give the consumer at least seven days to make the payment.

The Hire Purchase Act authorises the seller to repossess the good if instalments are not made on time.

The bailiff carrying out the action for him must bring a copy of the notice of repossession with him and leave a copy of this notice with the consumer. Only a licensed bailiff, who must show his licence and identification card, may effect a repossession. He may only enter the premises between the hours of six in the morning and six in the evening, Mondays to Saturdays.

The buyer must pay additional interest if a payment is late and also bears the cost of the bailiff. He should notify the creditor of any change of address or change in financial circumstances.

Compensation

The person who buys goods on hire purchase is required by law to take reasonable care of them until they are fully paid for and is liable to pay compensation to the seller if they are found to be damaged upon repossession or if returned due to early termination of the contract.

It is the duty of the provider of the hire purchase facility to give the buyer a copy of the agreement signed by both of them. Before signing, the latter should read and understand the terms and conditions of the contract and get help to do so if necessary.

The Consumer Affairs Commission is one agency established by government to protect consumer rights.

Hire purchase is not a license for uncontrolled spending. Use it wisely.

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