Beware of hidden HP hazards

By JANINE OGIER

A shopping expedition provides a tempting array of goods that would look perfect at your place.

Retailers have devised delayed purchase deals so you can buy a big ticket item even if you can't pay for it on the spot.

But keep in mind the traps for the unwary when you sign on the dotted line for hire purchase.

Paying a smaller amount over a period of time can make a large purchase affordable and you get to enjoy the goods in the meantime.

There is, of course, a cost for this privilege. Borrowers must meet the retailer's lending criteria, or more likely those of its finance company, before the agreement is set up.

You can end up paying hundreds of dollars more than the ticket price for an item once fees and interest costs are added.

Interest-free deals offered by large retailers can sweeten a purchase as theoretically you pay the cash price.

However the interest-free period only lasts for a specific time. After that, if the purchase is not fully paid off, the often-hefty interest charges kick in.

So the best plan is to complete payments for an item within the interest-free period.

There's always a fee to set up an HP agreement. A recent example of this charge at a large appliance retailer was $70.

It pays to shop around for HP deals as retailers offer varying arrangements.

The HP agreement must tell you how many payments you are required to make, how often to pay, the amount to pay, when to pay, where to pay, and the amount financed.

To work out the financed amount the cash price of the item is added to freight or delivery charges, installation charges, statutory fees, and optional repayment insurance.

When you're shopping take any home contents insurance documents with you because some retailers insist the goods are insured for theft, loss or damage.

As well, some stores insist on consumer protection insurance which will continue your payments for a period of time in the event of you losing your income because you are ill, made redundant or have an accident.

To calculate the total cost of credit other costs are added - interest charges, a booking fee, maintenance and repair expenses, insurance required by the seller, and other charges such as a fee to check your credit rating.

The amount you must pay back is the amount financed plus the total cost of credit.

A good indicator of the true cost of your purchase is the finance rate. This rate is higher than the interest rate because it adds the interest charges and other costs together and shows them as a percentage of the amount financed.

If you fall behind in your HP payments, contact the finance company.

They generally refer debt to collection agencies at around 60 days past the due date.

Budgetary advice is readily available in the community if you need help.

Otherwise you can arrange to spread the payments out further, have someone take over the HP and goods for you, or surrender the goods and cancel the agreement.

Don't ignore communication from a debt collection agency as it will affect your credit rating and the chance of getting HP or loans in the future.

People in their 20s and 30s setting up a house for the first time or upgrading their furnishings and appliances find interest-bearing HP deals an attractive financial solution and they're the main customers for this part of the market.

Young people are so used to debt, with many shouldering large student loans, they have no fear of HP and more debt.

The interest-free deals attract everyone.

Apart from the traditional whiteware and furniture purchases, plasma TVs are the main attraction for HP buyers at the moment.

Some finance companies are even providing HP deals for dental work and considering arrangements for plastic surgery bills.

When people tighten their financial belts, HP increases in popularity because people take comfort in keeping cash in their wallet and making payments over time.

But remember you don't own the item until the HP is paid off, so you can't sell it or use it as security to borrow money.