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Hire purchase commonly used to finance the purchase of a car or other high-value goods, is when the buyer makes a down payment and then pays the balance of the purchase price over an agreed period of time. In hire purchase the buyer is allowed to make use of the car while still paying and can only claim ownership after complete payment.
In this blog post we will be discussing what happens in there’s a default in hire purchase payment.
Hire purchase in Nigeria
In Nigeria, hire purchase is governed by the Hire Purchase Act of 1965. This Act outlines the rights, duties, and remedies of both the owner and the hirer in case of default. According to the Hire Purchase Act of 1965:
- Ownership of the asset remains with the owner (investor/financier) until the hirer pays the final installment.
- If a hirer has paid less than 50% of the hire purchase price, the owner has the right to repossess the goods without a court order.
- If the hirer has paid 50% or more, the owner must obtain a court order before repossession.
What is Default in Hire purchase payment?
Default in hire purchase happens when a borrower or hirer fails to make payment for hire purchase as scheduled in the hire purchase agreement. Hire purchase default can have serious consequences for both the borrower and the lender.
What Counts as Default in Hire Purchase?
Default occurs when the hirer fails to pay one or more installments as agreed in the contract or keep to other contractual obligations, such as maintaining the asset.
Default can lead to serious consequences because the hirer does not legally own the asset until full payment has been made.
What happens if I default on hire purchase payment?
If you default in hire purchase payment usually, the owner or company handling the hire purchase will contact you to know why and probably reason things out. You will then have to continue the payment as scheduled. In the event that you don’t pay back the arrears, your creditor will usually issue a default notice.
There is a percentage you must have paid to avoid repossession of the car or goods. When you miss payments before you’ve paid a half of the total amount owed, your creditor can usually take back the item.
In a case where you have paid more than half of the total amount you owe, your owner will need to go through court to get the goods back. In this case, you’ll be notified of a hearing date when the court will decide whether you must return the item or accept your offer of payment.
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Consequences of Hire purchase default
Here are some consequences of hire purchase default on the owner and hirer
- Legal action: The owner may take legal action against the buyer/hirer if they default on their payments. This can result in a court order to repay the debt and may even lead to bankruptcy.
- Loss of asset: The buyer/hirer may stand the risk of losing the asset because ownership only transfers after the final payment, default means the hirer risks losing the asset even if they have already paid a significant amount.
- Damage to Credit Score: Defaulting on hire purchase payments can seriously damage the buyer’s credit score. This can make it difficult for them to obtain credit in the future, including mortgages, credit cards, and loans.
- Right of Repossession: If the buyer defaults on their payments, the lender has the right to repossess the item. This means that the buyer will lose the item and will still owe money to the lender. If the hirer has paid less than half of the total hire purchase price, the investor can repossess the asset directly. If the hirer has paid 50% or more, the investor must go through the courts. This process may take time but protects the investor from being accused of unlawful repossession.
Can I sell items on hire purchase?
If you have an item on hire purchase you cannot sell it because you are not the owner until you have made full payment. Vehicles on HP are all recorded on a database called the HP Index which anyone can check before they buy a vehicle.
How to avoid payment default in Hire Purchase?
To avoid defaulting on a hire purchase agreement, it is important to carefully review the terms and conditions of the contract before signing. Make sure you understand the amount of the deposit required, the repayment period, and any additional fees or charges that may be included.
You may want to read How Long is the Payment Period for Hire Purchase Car?