Consumer credit contracts - buying on credit 


The finance agreement you make when you buy on credit is covered by the Credit Contracts and Consumer Finance Act (CCCFA). For general information about credit contracts visit our Consumer credit contracts - general information page.

What’s the difference between hire purchase and layby?

Buying on hire purchase is a form of buying on credit (i.e. a credit contract – loans are another form of credit contract). This means that you get the goods straight away, but you still owe money on them, and there can often be interest or other charges and fees.

When you buy on layby, the goods are kept at the shop while you pay for them. No interest is charged, and you can’t take the goods home until you have finished paying it off, so it’s not a credit contract. You can read our Layby page for more information about purchasing this way.

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I tried to buy a new refrigerator on credit, but my application was declined. Can they do that?

It’s quite likely that the trader requested a credit check on you, because they want to be sure that you’ll be able to make your repayments. If your credit record is unfavourable they are entitled to turn down your application to buy using credit. You can find out more about credit checks and how they affect your ability to get credit, on our Credit Checks and Records page.

Otherwise, they may have turned down your application if you have no regular income or are under 18, and do not have someone to act as guarantor.

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My hire purchase agreement includes insurance – do I have to pay for this too or is it optional?

You can be required to pay for insurance as part of your credit contract, for example:

  • payment protection insurance so that your payments can still be made if you lose your job (for example)
  • gap insurance (if the goods are destroyed and your other insurance does not fully cover your debt, this insurance covers the balance)
  • extended warranties

The trader or lender is not allowed to require you to take out insurance that you cannot use or that duplicates insurance you already have. For example, if you are not employed then they can’t require you to take out redundancy insurance; if the extended warranty does not offer more protection than the manufacturer’s warranty, they can’t make you pay for it.

For consumer credit contracts entered into from 6 June 2015, the lender must make reasonable inquiries before the contract is signed, to ensure that the insurance will meet with your requirements and that you will be able to make the insurance payments without suffering substantial hardship.

If you go ahead with paying for the insurance as part of your credit agreement, the trader or lender must give you a copy of each policy before the credit related insurance is arranged.

You can read more about insurance and credit contracts on the Commerce Commission website.