A vehicle may be purchased for cash or by trading in your old vehicle and paying the balance in cash. You may also obtain an unsecured loan and purchase a vehicle using the loan proceeds only or together with cash of your own supplemented by the trade-in value of your own old vehicle.
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’. Do not be fooled. Neither of these is a HP Agreement. However, if you purchase a vehicle using any of the above means, the vehicle is now your property.
An alternative means of acquiring a vehicle is via a Hire Purchase Agreement. A vehicle acquired in this way is not your property – at least not yet. The words ‘Hire Purchase Agreement’ simply means 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.
When acquiring a vehicle it is important to distinguish between an unsecured loan and a HP Agreement. The first step is to ask whoever is financing the deal which it is. If you are being offered a HP Agreement, you will have an opportunity to examine the contract documents. It sounds too easy but the documents will normally be entitled ‘HIRE PURCHASE AGREEMENT REGULATED BY THE CONSUMER CREDIT ACT 1974’. An alternative title used in HP Agreement documents is ‘CONDITIONAL SALE AGREEMENT REGULATED BY THE CONSUMER CREDIT ACT 1974’. These are both acceptable titles.
If you want to be doubly sure, check the text of the HP agreement. The text of the 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 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.