Frequently Asked Questions
You need to check the relevant legislation in your State and Territory, as the rules are different in each jurisdiction.
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What is a hire purchase agreement?
- A hire purchase agreement refers to a contract where the buyer purchases items and pays for them in instalments instead of paying the full value of the item upfront. There will usually also be interest paid on the item.
- At the end of the payment period and after all payments have been made the ownership transfers to the person who has been hiring the item and paying all fees.
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Can the purchaser use the equipment purchased under a hire purchase agreement before they own it?
- Under a hire purchase agreement the buyer has the right to possess and use the items from the moment the first instalment is paid. The right to possess and use is different to the rights associated with ownership.
- Ownership does not transfer to the person hiring the equipment until all payments have been made. Until this point ownership is retained by the person receiving the payments.
- You can use our Phone a Lawyer service to get a preliminary consultation if you think you may need legal advice about a hire purchase agreement.
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What are the advantages and disadvantages of buying items through a hire purchase agreement?
- The advantages of buying items through a hire purchase agreement can be summarised as follows:
- you have exclusive use and possession of the item without paying a large upfront purchase price;
- you can negotiate the terms of the hire purchase agreement so that the amount and regularity of payments is within your budget; and
- since the agreement is secured by the item being transacted the acceptance rate for a buyer applying for hire purchase finance is greater.
- There are a few disadvantages of buying items through a hire purchase agreement:
- interest rates can be high especially for buyers with a bad credit rating;
- if the buyer no longer uses the item they still have to keep making repayments over the life of the agreement for example if a car was purchased on a hire purchase contract and the car is written off in an accident the buyer still has to pay any outstanding repayments on the agreement even though they can no longer use the car; and
- as most hire purchase agreements extend for years the value of the item may have depreciated significantly by the time ownership transfers to the buyer.
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What are the advantages and disadvantages of equipment hire?
- The advantages of hiring equipment rather than buying it are:
- if you only need the item for a specific period of time hiring it would be significantly cheaper than buying it;
- if you are a business that uses equipment that is frequently upgraded such as computers, hiring a piece of equipment on a long term lease then ending the lease and replacing it with a lease for a new model of the same equipment can mean your business will be using up-to-date equipment without having to pay for the equipment outright; and
- if there are any faults or issues with the equipment that prevent it from working safely or properly it is the owners’ responsibility to arrange for the fault to be fixed at his or her own cost not the hirers.
- The exception to this is where the hirer caused the fault.
- The disadvantages of hiring equipment rather than buying are:
- as the hirer is not the legal owner of the equipment the hirer is obliged to use the equipment to the owners’ specifications;
- long term leases could end up being more expensive over time than paying for the item upfront; and
- the hirer runs the risk of losing their security deposit if they or anyone under their control causes damage to the equipment.
- Our LegalPlan™ membership will allow you to ask lawyers for a Fixed Fee Quote on your matter for all your equipment hire contract needs.
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Am I liable for any damage I have caused to a piece of hired equipment?
- Generally yes. You will be liable for any damage that is caused to the equipment from the time you take possession of it to the time it is returned to the owner.
- You will be liable to the owner even if the damage was not caused by you. For example if a friend was using the equipment and damaged it you will still be personally responsible to the owner for the damage caused. There are some general exceptions to this rule. For example:
- you will not be liable for damage that was already there at the time you hired the equipment; and
- you will not be liable for damage that was caused by natural wear and tear.
- When hiring new equipment it is important that you undertake a thorough inspection of the item before you take it from the owners’ premises. You should identify any damage or faults and note these as pre-existing in the condition report. If there is no condition report you should identify and discuss any pre-existing damage with the hirer before taking the equipment from their premises. By doing this you are protected if the owner then tries to blame you for causing the damage.
- It is normal for items to suffer damage after long term and regular use. The owner should be conducting regular service checks on all equipment to ensure they are not affected by wear and tear to the extent that they become unsafe. This is particularly the case with mechanical and electronic equipment. You should never use unsafe equipment.
- If the equipment is older than one year and has not been serviced in the last 12 months it is unlikely that the owner can blame you for wear and tear damage to the item.
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If I purchase an item through a hire purchase arrangement do I have any Goods and Services Tax (GST) obligations?
- The answer will depend on a number of factors.
- For agreements entered into before 1 July 2012 you will have to pay GST on the total purchase price if the seller does not separately identify and disclose the interest charge to you. You may be able to claim a GST credit if the items were for a business use.
- According to the Australian Tax Office (ATO) the seller discloses the interest charge to the buyer if he or she tells you any of the following in the hire purchase agreement:
- the dollar amount of the credit charge;
- the interest rate;
- the formula or formulas used to work out the credit charge amount; or
- any other information enough to work out the credit charge amount.
- For agreements entered into on or after 1 July 2012 all parts of the hire purchase agreement will be subject to GST regardless of whether the seller disclosed the interest charge to the buyer. GST will also have to be paid on any associated fees and charges such as late payment fees.
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How much interest will I have to pay on a hire purchase agreement?
- The interest rate will be determined between the parties. Some hire purchase agreements offer no interest repayments. Other agreements offer no interest for a specific timeframe with a set interest rate to apply after a period. A common example of this is a 24-month interest free furniture or whitegoods purchases from large retailers.
- The interest rate is open for negotiation so you should do your research before entering the agreement and secure the lowest possible interest rate.
- Generally the interest rate will be higher or lower depending on the buyer’s credit rating.
- The interest on 24 month interest free arrangements can often be high. You should be careful that you do not sign a contract for an amount that you do not think you can repay within a reasonable timeframe.
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Are the repayments I make on hire purchases or equipment hire tax deductible?
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How must a debt collector behave when they visit my premises to repossess goods?
- Contrary to what certain American reality television shows might have you believe a debt collector must always treat a debtor, their family and their property with respect, fairness and courtesy. Under the law a debt collector must:
- make contact with you at a reasonable time and place meaning the collector cannot come to your place of work if you have provided them with an alternative contact point; and
- make contact with you for a reasonable purpose only such as:
- to provide information about your account;
- to make a demand for payment; or
- to reach a flexible payment arrangement.
- A debt collector must not:
- enter your private property without either a warrant or your consent;
- use physical force against you or a third party such as a family member;
- harass or hassle you to an unreasonable extent;
- make statements or implications to mislead or deceive you; or
- take unfair advantage of any vulnerability, disability or other similar circumstances that affect you.
- If you have any concerns you can use our free and anonymous Ask a Lawyer service to get information specific to your situation.
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Can protected goods be repossessed if they are located in a public space?
- It depends. While a vehicle parked on a street is open to being repossessed the law is less clear when it comes to areas that are both public and private such as a privately owned car park that is open for public use.
- Your goods are protected by the fact that a warrant will be required before they can be legally seized.
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