Few people purchase their motor vehicles for cash at present. Financing can be a mix of trading in the current car, cash payment and funds supplied by a third party financial institution. The dealer will give a valuation of the motor vehicle being traded in and the potential buyer has to decide how the balance of the purchase price of the new or perhaps second hand car being bought, is to be financed.
In the event that funding by a third party is necessary, the customer should know that such a borrowing could be secured or unsecured. It’s important also to know the difference between funding made available through a HP agreement and an unsecured loan. A vehicle that is acquired and that is part financed or totally financed via a HP agreement doesn’t right away become the property of the buyer. The text ‘Hire Purchase Agreement’ applied in regards to obtaining a car actually indicates that the purchaser is entering into a binding agreement to hire the vehicle with an option to purchase.
Within the Hire Purchase Agreement the customer can have paid a down payment or traded in their own motor vehicle in partial payment for the vehicle being obtained but these activities on their own do not confer title of the vehicle on the customer nor do they bestow on the purchaser the right to sell on such a automobile. The documents that are typically supplied by the dealer when a motor vehicle is being purchased by way of HP will usually be titled ‘Hire Purchase Agreement Regulated by the Consumer Credit Act 1974’. An alternative title that may be used by HP documents is ‘Conditional Sale Agreement Regulated by the Consumer Credit Act 1974’. These are both accepted titles and demonstrate the binding legal character of the documents.
A car can of course be obtained with an unsecured loan providing a part or indeed all of the funding. Such a motor vehicle promptly becomes the property of the purchaser who may dispose of it whenever and as they wish. This kind of unsecured loan may be referred to 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’. These kinds of borrowing documents don’t comprise a HP Agreement. Puzzling, isn’t it? Let’s check out some of the other clues in the documents the consumer may be given to sign.
The text of a legitimate HP agreement must within the law incorporate a section entitled TERMINATION: YOUR RIGHTS’. This part verifies that the consumer has a right to end the agreement and details how they should proceed with doing so, if that is what they want to do. What’s more, the written text of a legitimate HP Agreement should also include a section entitled ‘REPOSSESSION: YOUR RIGHTS’. This section makes clear the buyer’s legal rights in cases where the HP company would like to repossess the vehicle. There are other conventional sections in a valid HP Agreement and if the document regarding the proposed agreement concerning the buying of the car ticks these boxes, then it is highly likely that it is valid HP Agreement. The customer won’t become the owner of a automobile attained under a Hire Purchase Agreement until he or she has paid all the installments payable under the agreement and exercised their ‘option to purchase’ at the end of the time period of the agreement.
In cases where the purchaser of a automobile using a HP Agreement goes into an Individual Voluntary Arrangement with their lenders, they will ordinarily have to continue to pay the total amount of the monthly HP premium for the full term of the HP Agreement. As a secured liability, the HP Agreement is just like a mortgage in that regard. The HP debt cannot be entered into the IVA unless the buyer defaults on their HP payments. In this kind of scenario, the HP provider would repossess the vehicle (according the customer their due rights under the agreement) and any deficiency would be entered into the IVA as an unsecured debt. At that point it would rank for dividend equally with all the various other unsecured liabilities.