Hire purchase and conditional sale schemes offer a means of paying for expensive items, such as cars and furniture, in installments. After an initial deposit, you make monthly repayments (including interest) over an agreed period.

Under a hire purchase or conditional sale agreement - unlike an ordinary credit agreement - you do not own the goods until the debt is paid off. You cannot sell and must not damage them, and the creditor can repossess them if you do not make regular payments.

You may be required to pay a fee at the close of the hire period to get ownership. Here are the rules to follow before entering into a deal.

1. Shop around

If you can afford to buy outright, do. It will be considerably cheaper. If you must buy on credit, compare the rates on hire purchase with a number of retailers. Make sure you know how much you will pay each month and in total.

Also check rates for unsecured bank loans. These may be cheaper than hire purchase and will give you the benefit of immediate full ownership of the product - although you remain liable for the cash. You can compare loan rates at comparison websites such as moneysupermarket.com.

You may be able to borrow money from friends or family. If you do, be sure to agree how much you will repay, and over what period.

2. Check the small print

You may lose the goods if you miss or make one late payment, so check the terms of any agreement carefully.

Even where goods are seized, you will have to pay all or part of the total cost of the agreement, and for any damage.

3. Be wary of insurance

The creditor may try to sell you payment protection insurance (PPI) to cover repayments if you are made redundant, have an accident or are sick. Be wary as this may carry significant exclusions - not paying out for common conditions such as stress and back pain, for example.

4. Know your rights

If you have paid more than a third of your debt, the creditor cannot reclaim the goods without going through the County Courts (or Sheriff Courts in Scotland). Even if you have paid less than a third, the creditor needs a court order to seize goods from your home.

The courts will allow you to explain your financial situation and to make a new repayment offer to the creditor. See here.

5. Terminate first

If you cannot keep up with repayments, it is much cheaper to end the agreement yourself than to have it terminated by the creditor. See an example from the UK Insolvency Helpline here.

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