Hi There
Was wondering if anyone knew if the clause in a contract that said you could hand a car back, half way through the agreement, was for cars purchased brand new, or if this was the case with any car purchased from a dealership? If I was to purchase an 06 reg car, would I be able to hand this back 1/2 way through or would I only be able to do this if i purchased an 08 car?
Thanks in advance
Edited by Pugugly on 31/07/2008 at 21:06
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A hire purchase contract (which seems to be what you have in mind) can be made for new or used goods. Not all car loans are hire purchase agreements. You need to read the contract which will fully explain your liability if you were to surrender the goods during the term of the agreement.
Taking out a HP agreement with the intention of surrendering the goods "half way through" does not sound like a good plan. It is quite likely to leave some information on your CRA records which will not be helpful to you if you want further credit subsequently.
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IF what the OP is doing is legal and in accordance with the contract he has, how can it adversely affect his credit record?
Edited by Armitage Shanks {p} on 31/07/2008 at 22:42
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I'm not sure what Manatee or the original poster mean by 'half way through'. I worked in the instalment finance business for about 15 years and my recollection of the relevent law is that if the agreement is a hire purchase one then, once the customer has paid half of the 'hire purchase price' he (or she) is able to surrender the goods back to the finance company and not be liable for any further payments. The 'hire purchase price' is the cost of the goods + the interest charge + the 'option to purchase fee' (which used to be £1 but which I suspect is now considerably more).
The original poster might have interpreted 'half way through' as being after he has paid half the number of payments which are stipulated on the original agreement. This is often a figure much less than half the hire purchase price so he needs to get expert advice before he gets himself into hot water as suggested by Manatee.
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I did just that in 2001. As far as I understand it, you must have paid half the total cost, which includes the deposit and the total interest due and not just the financed amount. I believe such action cannot be used to black mark your credit rating.
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Scouseford, my understanding is the same as yours. I have had 30 years in different areas of instalment finance (I am not trying to cap your 15 years which might for all I know have benefitted you more than my life sentence has me).
Of course any arrears at the time of surrender must be paid; and the cost of making good any damage to the goods. The deposit plus half the monthly payments would potentially be less than half the HP price if there was a large final payment scheduled. I didn't know what the OP meant by 'halfway through' either, which is why I put it in quotes.
Armitage - as to how a perceived lawful termination could adversely affect credit records - well, there isn't always agreement between the parties as to the circumstances, or there may be a dispute over the condition of the goods...and in any event, a hirer given to voluntary surrender and termination is not generally an attractive prospect - the fact that the hirer might have discharged his strict liabilities does not, ipso facto, mean that the finance company doesn't have a shortfall on disposal of the goods. Does anybody fancy giving the OP a car loan?
We're being asked to comment on an as yet non-existent contract of which we cannot possibly know the terms - my advice was for the OP to read any such proposed contract to understand his options, and it still is.
Edited by Manatee on 01/08/2008 at 00:06
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Manatee - I have zero experience of finance - I did my life sentence elswhere and with no time off for good behaviour! Your final paragraph sums up the situation very well. We shall have to wait and see if OP gives us the outcome. As an aside, I might give him a car loan! Google for "Zopa"!
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There's absolutely no problem in doing this, as long as half the total payment has been made and the vehicle is in reasonable condition. It doesn't affect credit rating, although it might be difficult to get finance from the same finance house again!
It's quite common where people put very high mileages on the cars and therefore destroy their value.
Before April this year, this only applied to "regulated agreements" which were up to £25K. There's some consternation amongst finance houses that this limit was removed in April 08 so now it applies whatever the value. That's had the side-effect of increasing rates on more expensive cars, as the finance companies are terrified something expensive could handed back with 120K miles on it after 2 yrs, which couldn't have happened before April.
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I haven't been involved with auto finance for 20 years, and voluntary terminations (VTs) weren't particularly common then, and tended to be associated with hirers in difficulties with their commitments - I suspect many still are.
I'm not au fait with current typical levels of VT, but there was an increase in VTs following the fall in new car 'real' prices after 2000 which the lenders claimed caused them unfair losses. I can see this being repeated now with many hirers getting into 'negative equity' territory. Anyone whose car is currently subject of an HP agreement should perhaps look at it carefully to see if they can pass the problem on to the owner/lender!
I don't think that's quite the same as taking out an agreement with the intention of VTing. For one thing, the lenders will presumably tend to structure agreements so that the expected depreciation curve doesn't diverge too far below the settlement figure - particularly when credit is tight and they can impose stiffer terms (deposits and repayment periods).
If, when the time comes, the car is a bit knocked about, then you are likely to get into a dispute; if you were to fall into arrears at any point you run the risk of the owner/lender getting its retaliation in first by terminating the agreement, which would upset the master plan! Either of these eventualities could affect your CRA records.
VT was originally conceived, and has been maintained and extended, as a form of consumer protection - it reduces the possibility of hirers having to make payments on goods of low value where they do not have full ownership rights - it also motivates the finance companies not to extend hire purchase over excessive periods, which will limit the opportunities for hirers to 'exploit' the protection.
To conclude - again, and more explicitly - the OP needs to consider the contract on offer: Is it HP/Conditional Sale, or an unsecured loan where there no VT rights anyway? What is the deposit, APR, repayment period, loan amount, and how does the early settlement curve intersect with the predicted depreciation one, taking into account anticipated mileage?
Even when you have worked that lot out, it's still only a forecast. Any financial commitments on the scale of car purchase need to be taken seriously.
I take no issue with Bill's statement above - but that doesn't mean that everything will be OK, especially if your circumstances change or you collect a few dents. Bill also rightly points out the 'loophole' for high mileage drivers - which is why finance companies usually impose higher deposits/shorter repayment periods on self-employed taxi drivers!
Edited by Manatee on 02/08/2008 at 00:17
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