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Difference between HP and Loan

Many people purchase vehicles without clearly understanding whether the finance is provided via a HP agreement or an unsecured loan. There is an important difference.

A vehicle acquired via a HP agreement is not your property – at least not yet. The words ‘Hire Purchase Agreement’ simply mean that you have entered into an agreement to hire the vehicle with an option to purchase. Accordingly you do not have the right to sell on such a vehicle. You may have paid a deposit or traded in your own vehicle as part of the Hire Purchase Agreement but that does not make you the owner of the vehicle. Documents provided when acquiring a vehicle via HP will normally be entitled ‘Hire Purchase Agreement Regulated by the Consumer Credit Act 1974’. An alternative title used in HP documents is ‘Conditional Sale Agreement Regulated by the Consumer Credit Act 1974’. These are both acceptable titles.

Car HP or Loan

If however you purchase a vehicle financed in whole or in part by an unsecured loan then it is your property and you may dispose of it when and as you wish. Such an unsecured loan may be described in the loan documents as ‘Credit Agreement Regulated by the Consumer Credit Act 1974’ or ‘Fixed Sum Loan Regulated by the Consumer Credit Act 1974’. Neither of these is a HP Agreement.

The text of a HP agreement should include a section entitled TERMINATION: YOUR RIGHTS’. This section confirms that you have a right to end the agreement and explains how you should go about doing so, if that is what you want to do.  Furthermore, the text of a valid HP Agreement should also include a section entitled ‘REPOSSESSION: YOUR RIGHTS’. This section explains your rights in the event that the HP provider wishes to repossess the vehicle. There are other standard sections in a valid HP Agreement and if the agreement in front of you ticks all the boxes above, then it is highly likely that that is what it is. You will not become the owner of a vehicle acquired under a Hire Purchase Agreement until you have paid all the installments due under the agreement and exercised your ‘option to purchase’ right at the end of the term of the agreement.

In the event that you enter into an IVA or Individual Voluntary Arrangement with your creditors, you will have to continue to pay the full amount of the monthly HP premium. As a secured liability, the HP agreement is similar to a mortgage in that respect. The HP debt cannot be entered into the IVA unless you default on your HP payments. In such a scenario, the HP provider would repossess the vehicle (according you your due rights under the agreement) and any shortfall would be entered into your IVA as an unsecured debt. At that point it would rank for dividend equally with all your other unsecured liabilities.

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