Consumers occasionally have difficulty in distinguishing between types of personal debt and loan companies can occasionally be not so helpful in outlining some of these differences. A particular distinction that’s very important to be aware of is whether a personal debt is collateralized or unsecured. Take for example a situation where you’re considering buying a car or another sort of automobile. There are a wide range of methods that you can have to pay for your new or second hand car. If you’ve got the funds available, you could pay completely in cash. Instead you may buy your car by just trading in your previous vehicle and paying the balance in cash.
Yet another way you can do it is by obtaining an unsecured loan from your bank or building society or even from a family friend and buying the vehicle using the loan funds only or in some combination with your own cash funds supplemented by the trade-in value of your own old car. The loans gotten like this are unsecured and the people who loaned you the money have no claim over the things you buy with it, in this case the car. In the event you obtained the loan from a bank or building society or another sort of finance company it’s likely you’ll realise that this sort of unsecured loan may be referred to in the loan documents as ‘Credit Agreement Regulated by the Consumer Credit Act 1974’ or ‘Fixed Sum (blank) Regulated by the Consumer Credit Act 1974’. Do not be fooled. Neither of these is a Hire Purchase Agreement and if you buy a car using this type of loan entirely or in part, the car is now your property. The loan originator of the monies has no claim at all on the car and cannot take it on ‘security’ grounds.
However, you might find when you visit your car dealership to buy your vehicle that your car dealership proposes that you take out or enter into a Hire Purchase Agreement. You should pay attention closely to the words used by the dealer and study thoroughly any paperwork furnished. In the event you obtain a vehicle under a Hire Purchase Agreement, the vehicle isn’t your property – at least not yet. The words ‘Hire Purchase Agreement’ merely means that you have signed a binding agreement to rent the car with an option to purchase it. Consequently you do not have the legal right to sell off on such a car. Even if you have paid a deposit in cash or otherwise or traded in your own car as part satisfaction of the Hire Purchase Agreement, it doesn’t enable you to be the owner of the car.
On that basis, when you go to get yourself a vehicle it is important to know the difference between funding the deal (in whole or in part) using an unsecured loan and funding it (again, in whole or in part) by entering into a Hire Purchase Agreement – let’s call it simply HP. The first task is to ask the person who is financing the sale and to ascertain if it is a secured or an unsecured loan you are being offered. When you are being offered HP, you will get the chance to examine the agreement paperwork. Make sure that the documents are entitled ‘HIRE PURCHASE AGREEMENT REGULATED BY THE CONSUMER CREDIT ACT 1974’. A different name used in HP documents is ‘CONDITIONAL SALE AGREEMENT REGULATED BY THE CONSUMER CREDIT ACT 1974’. These are both acceptable titles for HP.
If you want to be doubly certain, examine the text of the HP agreement. The text of the contract need to include a section titled TERMINATION: YOUR RIGHTS’. This section verifies that you have a right to cease the contract and makes clear how you can and should set about doing this, if that is what you want to do. Additionally, the writing of a valid HP Agreement must also come with a part called ‘REPOSSESSION: YOUR RIGHTS’. This part clarifies your rights if the HP provider wishes to claim the car. There are other standard parts in a good HP Agreement and if the contract in front of you ticks all the boxes previously mentioned, then it’s very probable that that is what it is. You will not become the owner of a car acquired under a Hire Purchase Agreement until you have paid all the repayments owing under the agreement and exercised your ‘option to purchase’ right at the conclusion of the duration of the agreement.
If you enter into an Individual Voluntary Arrangement with your creditors, you must still pay the full amount of the monthly HP premium. As a secured liability, the HP agreement is just like a mortgage loan in that regard. The HP liability cannot be entered into the IVA unless you default on your HP payments. If you do fall behind on your HP payments, the HP provider can, and probably will, claim the car (according you your due privileges under the agreement). Any shortfall that arises would accomplish ‘unsecured’ status and be entered into your IVA as an unsecured liability. At that time it would rank for dividend equally with all other unsecured liabilities.
