10 things to watch out for when...Buying on credit or hire-purchase

Ownership: In a hire purchase agreement, the seller of the goods is considered the dealer, the purchaser is the leaser and the intermediary finance company the owner. Only once all instalments have been paid does ownership pass to the purchaser.

Bite-size chunks: Consumers tend to choose such plans when buying big-ticket items and many suppliers of electronics, furniture and jewellery have payment options. Hire purchase is popular when buying a car.

Instalments: The benefit for the consumer is that you get to sit on the lounge suite or drive the car before you have paid for it. Agreements usually allow for payment over six to 12 months.

Do the maths: Calculate how much interest you are being charged. It may be more cost-effective to wait until you have saved the entire amount. According to Aeon Credit Service, many companies are able to trim commissions on higher-margin items and do not charge interest on instalments.

Credit: Not all credit is bad credit. Companies may choose to buy computers and other equipment on hire purchase so as not to eat up precious investment capital. Putting a big item on your credit card can prove more expensive than an instalment plan, depending on charges.

Defaults: If you default on a hire purchase repayment the finance company has the right to reclaim the goods. Payments can usually be made by telephone, cheque, in person or by automatic debit order. Read the small print and ensure you do not inadvertently miss a payment.