A consumer says options were not explained when she wanted to exit a hire purchase agreement early because of financial difficulties

Financial Difficulties

Judith's financial circumstances had changed, which meant that she was no longer able to make the payments on a hire purchase agreement.

What happened

Judith took out a hire purchase agreement for a new car, but a month after taking out the agreement her circumstances changed. It meant that she wouldn't be able to make the payments on the agreement, and realistically wouldn't be able to for a long time. She got in touch with the lender and asked if she could hand back the car and leave the agreement early. 

The lender told Judith she'd have to do this under a process called voluntary termination. This was a right she had in her agreement (and in statute) which allowed her to hand back her car early on the basis she was liable to pay half of the agreement (and some items such as arrears and any charges for damages). For Judith, this came to around £10,000 and the lender offered to set up a repayment plan if Judith couldn't afford to pay this in one lump sum. 

Judith said there must have been a better solution for her than this. The lender said there wasn't, so Judith came to us to make sure that this was right. 

What we said

When we looked at what had happened, we didn't think the lender had considered Judith's best interests because it didn't explore any alternative ways that she could exit her hire purchase agreement. We thought the lender should have considered and clearly explained another option which would allow Judith to hand back the car, sell it, and deduct the proceeds from the total amount she owed - a process often called voluntary surrender. Even though Judith hadn't fallen behind in her payments at the time, we thought the lender should still have considered it as a matter of good practice. 

Under this option Judith would most likely have owed the lender around £6,000 - considerably less than she did under the voluntary termination option. This was because the car was brand new and still worth a considerable sum. It was also because Judith was very early into her finance agreement so would have likely received quite a big amount in the sale proceeds of the car. 

We thought if the lender had explained this to Judith along with the likely implications of both exit options, it's more likely she would have chosen the voluntary surrender option.

We asked the lender to put Judith in the position she would have been if it had let her exit her agreement by voluntary surrender - reducing the total amount she owed under the agreement by the proceeds of the sale of the car. We also asked the lender to come to suitable repayment agreement for the remaining amount she owed after this.