HIRE PURCHASE RIGHTS

AND REPOSSESSION

INFORMATION FOR ADVISERS

TYPES OF CAR FINANCE

• HP/Conditional Sale

• Lease/Hire Agreements

• Personal Contract Purchase (PCP)

• Personal Loan

• Logbook Loan

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.

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

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 Pay off remaining amount to purchase vehicle (Balloon payment)

o Start another agreement and get a new car

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

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

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.

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

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

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 If client doesn’t respond, the Court is likely to grant in the Creditor’s

favour

o If client is unable to attend, they should advise the Court of the reason

why and should make an offer of payment

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 £18500

Car sold for £6700

Amount already paid £7100

Client would be liable for £18500 - £6700 - £7100 = £4700

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)

HIRER’S RIGHTS

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

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