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Legal Terms– Hire Purchase
Definition:
A form of credit agreement allowing a buyer to take possession of goods after paying an initial deposit, while ownership remains with the seller or finance company until all instalments are fully paid.
Key Features:
- The buyer (hirer) gains use of the item immediately after the initial payment.
- Ownership transfers only once the final instalment is paid and the option to purchase is exercised.
- If payments are not completed, the goods can be repossessed.
Legal Framework:
Originally governed by the Hire Purchase Act 1965, modern hire-purchase agreements are regulated by the Consumer Credit Act 1974. This legislation views such arrangements as bailments with an option to buy.
Financial Involvement:
Commonly, a third-party finance company is involved — the retailer sells the goods to the finance firm, which then hires them to the customer under a hire-purchase contract. There is often no direct contractual link between the retailer and the consumer.
Practical Example:
A person acquires a television through hire purchase, paying a deposit followed by monthly instalments. They may use the TV immediately, but ownership transfers only after all payments are made
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