Hire Purchases for Cars
Sometimes you may wish to acquire a new car on hire purchase. Hire purchases for cars is an agreement where you have a car but technically it’s not yours because you haven’t bought it outright. For a hire purchase agreement to exist, you must pay an initial deposit and then the remaining balance to be paid over a set number of months which will be stated in the agreement.
Once you have paid the full amount for the car you will own the car fully. Hire purchase for cars is available for both brand new cars and used vehicles. However if the car is older than two years, these are often excluded from the hire purchase agreement. This is because as soon as you buy a car it depreciates in value so by the time you have paid off the finance for the car, the value of it will be too low.
Hire purchase agreements are available from a bank, car dealer or loan company.
Hire Purchase Benefits
One of the main benefits of purchasing a car this way is that hire purchase agreements are relatively easy to obtain and they are very easy to manage over the term of the loan. They are often cheaper than other forms of finance that you may use to purchase a car.
Of course there are drawbacks to this type of finance. Firstly although you are making monthly payments for the car, until you have paid the loan in full the car isn’t yours, it will remain the property of the lender. This means that if you would like to sell the car at any time and the agreement period hasn’t ended you will need to request permission from the lender.
Furthermore, if you start to get into financial difficulty, the finance company will be able to take possession of your car and sell it at auction. You will still be liable for what you owe in addition to any costs that the lender has incurred to recover and sell the car. It is therefore very important that you keep up your repayments.
There are alternatives to a hire purchase and these include a normal, unsecured loan and a personal contract purchase.
Unsecured loan – When an unsecured loan is granted, you will be given the funds in advance to buy the car and then the debt will be repaid in monthly instalments over a certain amount of time. Typically, an unsecured loan is available from a bank, building society or finance company. It is sometimes quite difficult to secure a loan to purchase a car because lenders will only provide the funds to homeowners with a solid financial background.
Personal contract purchase – Another alternative to the hire purchase is where you will pay a 20% deposit of the total amount of the car and then pay an agreed number of monthly instalments for the remaining balance. This can be taken out over a maximum of three years. This method of finance is cheaper in terms of the monthly payments that you have to meet, it is often more expensive over the long term when compared with a hire purchase agreement.
If you decide that a hire purchase agreement is for you, there are several things that you should consider. Firstly, you may not wish to continue with the agreement, secondly you may have missed some payments and thirdly you would like to sell the car.
Stopping the agreement
If you decide that you don’t want to continue with the agreement any longer, there are some rules and regulations that govern how you can exist a hire purchase agreement. This guidance is contained within the Hire Purchase Act 1984.
Giving the car back to the lender will depend on the length of time that you have owned it. If you have paid more than half of the total price that is outstanding, you should be able to return the car without any penalties.
This will depend on the terms and conditions attached to the agreement so make sure that you do read these before you commit to the hire purchase. If you would like to send the car back before you have paid half of the price you can but you will need to meet any redemption charges that may be payable.
The cost of this will vary but as a general rule, they are calculated based on the difference between the amount that you have already paid toward the car and the value of the car.
There may be instances where the lender can take possession of the car. Usually this will happen if you fall behind with your payments. Even two missed payments mean that the company has the right to repossession.
If you have failed to meet your repayments and you have paid than a third of the cost of the car, it can be repossessed. A car can be repossessed at any time when the car is parked on public land but they cannot repossess if it is parked on private property such as your driveway.
If you car is repossessed, it won’t be done without any notice. Usual practice is to issue a pre-possession order which will give you around 15 days notification before the car is taken away. If a hire purchase company have to take possession of your car for non-payment but you have already paid more than a third of the cost of the car, they will need to take you to court because your vehicle cannot be repossessed.
Sale of the Vehicle
Under the Hire Purchase Act it is prohibited to sell a car that is still under an agreement. If you would like to sell the car you will need to speak to the hire purchase company to find out your options.
If you buy a car that is subject to a hire purchase agreement, you will get full title to the car provided that you as the buyer didn’t know that the car was under a hire purchase agreement before you bought it and you are a private buyer as opposed to a finance company or dealer.
About the Author
This article was written by a member of the Expert Answers team and posted by Lloyd Barrett, Admin & Customer Services Manager for online advice service Expert Answers. Expert Answers provides legal advice to users in the UK who post a question on their secure platform.