HIRE PURCHASE RIGHTS AND REPOSSESSION INFORMATION FOR ADVISERS

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1 HIRE PURCHASE RIGHTS AND REPOSSESSION INFORMATION FOR ADVISERS

2 TYPES OF CAR FINANCE HP/Conditional Sale Lease/Hire Agreements Personal Contract Purchase (PCP) Personal Loan Logbook Loan

3 HIRE PURCHASE (HP) Hire Purchase is where a client has the possession of an asset (usually a car) on the provision that they maintain the payments agreed within the credit agreement Once all payments have been made in the agreed time period, the client has the option to buy the asset, usually for a nominal payment If the client defaults on the payment, the lender can apply to repossess the goods basically a rent to buy scheme, as the asset does not belong to the client until all the debt has been paid.

4 LEASE/HIRE AGREEMENT Car remains the property of the finance company You pay a monthly amount for a fixed period, handing the car back at the end Agreement often includes restrictions on use Can be penalised for excessive mileage Vehicle can be repossessed

5 PERSONAL CONTRACT PURCHASE (PCP) When you buy the car on a PCP agreement, the finance provider still owns the car Normally over 3 years Guaranteed future value agreed at the beginning 3 options at end of the agreement:- o Hand car back (nothing to pay if up to date and no damage) o o Pay off remaining amount to purchase vehicle (Balloon payment) Start another agreement and get a new car

6 WHAT IS A BALLOON PAYMENT A large final payment at the end of a Lease Purchase or PCP contract which needs to be paid in order to take ownership of the vehicle Client must either pay this or re-finance the payment

7 LOGBOOK LOAN Logbook loans are a way of borrowing money using the vehicle as security You hand over ownership of the vehicle to the logbook loan company until the loan has been repaid You continue to use the vehicle, but if you don t pay the loan your car can be taken away and sold Normally paid back over 1 to 3 years. The amount you can borrow depends on the value of the vehicle, but is usually 400 to 5000 The rate of interest is very high, often 300% APR or more. You often pay back more than double the amount borrowed Two separate agreements issued A Personal Loan & A Bill of Sale V5 logbook

8 LOGBOOK LOAN In England, Wales and Northern Ireland two separate agreements are used when a logbook loan is issued: A personal loan agreement is signed, setting out how much you borrow and how it is to be repaid. This is regulated by the Consumer Credit Act A bill of sale agreement is also signed. This transfers the legal ownership of your vehicle to the creditor until the last loan payment is made Most companies will also ask you to hand over your V5 logbook and other vehicle documents as well. Even if you don t give them these documents, the vehicle still belongs to them and you can t legally sell it.

9 TIME ORDER If the client is struggling with their HP payment and has defaulted on payments they can apply for a Time Order Applied for at the local County Court Time Orders prolong the amount of time that the client has to pay the arrears over (usually the remaining term of the loan) The order can vary monthly payment, term of the loan or interest rate

10 REPOSSESSION There are different rules on repossession of an HP vehicle depending on how much of the agreement the client has paid If the client has paid LESS than one third of the total balance (inc. balloon payment) the Lender can repossess the vehicle without having to go to Court If the client has paid MORE than one third of the total balance (inc. balloon payment) the goods are protected & the Lender would need to get a Court Order to repossess them

11 REPOSSESSING PROTECTED GOODS Once the client has paid MORE than one third, the Creditor must issue a Default Notice and apply to Court in order for the goods to be returned. Client will be sent a Claim Form, which will show a Hearing Date Normal claim form procedure applies Court sends copy of client s response to creditor If Creditor agrees the offer, the return of goods order will be suspended and court hearing cancelled. If Creditor rejects the offer, the hearing will proceed. At the hearing:- o Decision to grant or suspend the Return of Goods Order o o If client doesn t respond, the Court is likely to grant in the Creditor s favour If client is unable to attend, they should advise the Court of the reason why and should make an offer of payment

12 WHAT WILL THE CLIENT OWE? Repossession by the creditor The client would be liable to repay the full outstanding balance FULL BALANCE -- SALE PRICE -- AMOUNT ALREADY PAID Example:- Total balance outstanding on agreement Car sold for 6700 Amount already paid 7100 Client would be liable for = 4700

13 WHAT WILL THE CLIENT OWE Voluntary Termination Client has the right to voluntarily terminate the agreement in writing if they wish to return the car and there has not been a Default issued If the client has paid over 50% of the agreement (inc. any balloon payment) he/she can return the goods without having to make further payments (providing asset is in good condition) If the client has paid less than 50% of the agreement (inc. any balloon payment) he/she would need to pay 50% of total owed payments made (+ any damages)

14 HIRER S RIGHTS

15 VOLUNTARY SURRENDER NOT the same as Voluntary Termination In Voluntary surrender the client is liable for the whole outstanding balance due under the agreement less the proceeds of the sale of the vehicle FULL BALANCE -- SALE PRICE -- AMOUNT ALREADY PAID

16 HOW LONG DOES IT LAST? It lasts until all the included debts have been repaid If the Judge grants a Composition Order the repayments will only need to be made for 3 years The Admin Order is recorded on the credit file for 6 years from the date the Order was made Also added to the Register of Judgments, Orders & Fines for 6 years from the date the Order was made