Buying on Credit: Your Rights

There are times when we need to buy things on credit - when you need to replace something expensive and don't have the cash to cover it, for example. The bad part, of course, is that in exchange for paying over a period of time, you end up paying more for the item. Essentially, you're borrowing the money.

When You Sign

Take the time to check and understand the credit agreement very thoroughly before you sign it. Ask questions. Once you've put pen to paper, you'll only be able to cancel if you signed the agreement at home because a salesman came there, or you if took the agreement home from business premises to sign it. The agreement must have a box telling you about cancellation. However, even if you can cancel, you only have five days to act. The best way to send your cancellation is by recorded delivery - and keep the slip as proof.

Interest Free Agreements

Beware of interest-free agreements; they're not all that they claim to be. You only avoid paying the interest if you pay the entire amount by a specific date, and the companies don't always tell you this. If you don't pay that full amount on time, you might well end up being charged a very high interest rate.

Credit Cards

With a credit card, you're billed once a month for your purchases, and you often have yet another month in which to pay, known as the "grace period." This means, as long as you pay your bill in full each month, credit cards can be good. If you don't pay in full, the interest, which is called the APR (annual percentage rate), can be high (one card showed 49%).

Hire Purchase

Hire purchase differs greatly from credit cards. You still make monthly payments, with interest, but you don't own whatever you're buying until the whole amount's paid - and if you don't make your payments, the company can repossess the goods. Additionally, you're responsible for damage.

Hire purchase might seem a good idea; it's easier to get than a credit card or a loan, but there's a downside - it can be much more expensive. Check the APR, of course, but also the total amount you're going to end up paying. You might well find that a loan is a cheaper option.

Your contract must explain your payments and other conditions, and you have to be given "key information" before you buy. Read the contract very carefully, and don't sign if you're not completely happy. Don't be afraid to ask questions - both the retailer and the HP company should be glad to answer them fully. Remember - never sign anything you don't understand! It's also in the lender's interest to make sure you're fully informed; if they don't give you all the proper financial information, they might need a court order to enforce the contract.

Payment protection insurance might also be offered as an option. This is meant to make your payments in case you're ill or unemployed. But, as with everything, check the small print very carefully; there might be exclusions (it might not apply to self-employed people, for instance). Even if you decide to buy the insurance, weigh the terms - it might be cheaper to pay in cash rather than as part of the credit.Ending Your Contract EarlyYou can end your agreement early and let the HP company take back the goods, but specific conditions apply. The amount must be under £25,000, you'll need to inform the company of your decision in writing, and your total payments must be up to half the price of the goods (you should be able to find that amount in your contract). If you took out insurance, that will have to be paid off too.

If you're past the halfway mark in your payments, then you'll only have to cover any missed payments and damage. The company shouldn't charge you for returning the goods, and if you have to take them back yourself (which should be stated in the contract), you should only have to travel a "reasonable distance."

You can also pay off your loan early and keep the goods, and there are rules on how this pay-off should be calculated, examples of which should be in your agreement. But you'll need to contact your lender to find out the exact cost.

Unable to Afford Repayments

If your financial picture turns dark and you're not able to afford the repayments, the first thing to do is contact the company; you might be able to renegotiate. However, if you stop making payments, the company can repossess the goods. First, though, you'll be given a chance to make your payments. Again, if you don't have the money, explain this. Where they'll only accept full payment, they can take you to court for the money, although you can ask the court for more time to pay.

The only way they can repossess without a court order is with your permission. They can't enter your property to repossess without a court order, and if you've paid more than one-third of the total cost, they'll need a court order for repossession. Realistically, though, if you're having problems making payments, then the best course of action might well be to let them take the goods.

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