Terminating Hire Purchase Agreement Early?

bjblackmore · 22 November 2009 at 11:23AM

Hi,

Last year, in July I was given a £400 per month car allowance from the company I worked for. At the time the company seemed to be doing well, so I went out and got a car for £400 per month on Hire Purchase. The deal was we pay £400pm for 48 months, then at the end we can either pay a £7,000 final valuation fee, or walk away.

At the time it seemed like an OK deal, as I said the company I worked for was doing well. However in August this year the company went into administration, then liquidation. I've tried to continue paying the £400pm car allowance, however my new job isn't paying as much as my previous one, and I can't afford to continue paying.

Does anyone know how best to terminate the agreement? Is it even possible? I've read throught the credit agreement, but is worded so complexly its difficult to understand. There is one section called 'Termination: Your rights' which reads:
'You have the right to end this agreement. TO do so, you should write to the person you make your payment to. They will then be entitled to the return of the goods and to half the total amount payable under this agreement, that is £13,256. If you have already paid at least this amount plus any overdue installments and have taken reasonable care of the goods, you will not have to pay any more.'

Does this mean we have to have paid £13,256 before we can terminate the agreement? As we've only had the car for 14 months we've only paid £5,600. So does this mean we have to find another £7,656 to get out of the contract? If so, this seems rather unfair, they would end up with a car still worth £17,00 + £13,256.

Any advice would be really appreciated! In hindsight I'm wishing we'd banked the £400 car allowance, and just got an old run around! But we just didn't forsee the current circumstances!

Thanks

Ben

milan_ns · 22 November 2009 at 11:44AM

I'm in similar situation.

From what I know you can

1) Get a loan, pay off HP in full, sell the car, repay the loan (or event better finance this with your savings if you can)
2) Continue payments until month 24 and just return the car
3) Return the car and pay the balance (half the money of the entire deal, less what you've paid so far)

I'll probably go for option 1

bjblackmore · 22 November 2009 at 4:50PM

Hi,

Thanks for the reply.

I'm thinking the same as you, loan & repay the HP.

We went to the garage today where we brought it, and asked what they could suggest, but they said it had to much negative equity on it. They said the deals not really designed to hand back the car after 1 year. We can't even swap it for a cheaper car.

We either pay the additional £7,656 in one go and hand the car back, which is point less, as we might as well continue paying £400 monthly and continue to use the car, until we've paid the £13,256, then hand the car back. This means we loose £13,256 in 2 years, and have nothing to show for it.

Or, option 1 like you, we take out a loan for £17,000 which is the outstanding balance, and pay off the HP, added to the £5,600 we've paid so far, we end up paying £22,600 but own a car at the end of it.

This then gives us the option of keeping the car, and repaying the loan monthly, which would still be cheaper than the HP, or selling the car, and paying off the loan!

bjblackmore · 22 November 2009 at 5:11PM

The question now is; Should I get a personal loan from a bank (alliance & leicester or Nationwide seem best), which charge around 8 - 8.9% APR, or see if we can add it to our existing mortgage - currently with Nationwide @ 2.5%, I think any additional lending is done at their new base rate of 3.5%?

Clive_Woody · 23 November 2009 at 2:53PM

bjblackmore wrote: »

The question now is; Should I get a personal loan from a bank (alliance & leicester or Nationwide seem best), which charge around 8 - 8.9% APR, or see if we can add it to our existing mortgage - currently with Nationwide @ 2.5%, I think any additional lending is done at their new base rate of 3.5%?

Just a word of caution, if you currently have a mortgage and an outstanding HP deal, plus your salary recently went down you may find it difficult to borrow an additional £17,000 as a loan.

If you have a significant amount of equity in your house your mortgage lender might lend you the money secured against your house, but bear in mind repayment would then be spread across the remainder of your mortgage term unless you made overpayments to pay this additional borrowing back sooner.

bjblackmore · 23 November 2009 at 3:15PM

Hi Clive,

Thanks for the reply.

This is what I'm trying to work out: Our mortgage rate is 2.5%, I'm fairly sure any additional lending is done at a new base rate of 3.5%. The cheapest loan rate is 8%. How would it compare if we put the monlthy amount we would pay off on the loan, towards paying off extra on the morgage?

I.e. Our current monthly morgage payment is £500. We would pay back the loan at £300 per month. If we got more against the morgage, and paid off £800 per month, wouldn't this get rid of the loan faster, as its paying off the same loan amount, but at 3.5%, not 8%?

I'm not sure how to work out the calculations to show which would be best!?

Clive_Woody · 23 November 2009 at 6:15PM

bjblackmore wrote: »

Hi Clive,

Thanks for the reply.

This is what I'm trying to work out: Our mortgage rate is 2.5%, I'm fairly sure any additional lending is done at a new base rate of 3.5%. The cheapest loan rate is 8%. How would it compare if we put the monlthy amount we would pay off on the loan, towards paying off extra on the morgage?

I.e. Our current monthly morgage payment is £500. We would pay back the loan at £300 per month. If we got more against the morgage, and paid off £800 per month, wouldn't this get rid of the loan faster, as its paying off the same loan amount, but at 3.5%, not 8%?

I'm not sure how to work out the calculations to show which would be best!?

Have a play with this...

http://www.thisismoney.co.uk/loan-repayments-calculator

Change the values (Loan term and interest rates to see how it affects your monthly payment). Paying back £17k over 5 years at an interest rate of 3.5% puts your repayments at £309.26 per month.

Basically if you wanted to pay back your loan at £300 per month, then the lower the interest rate is, the quicker you would pay it back.

Check your mortgage allows over-payments, plus if you are on a fixed term mortgage deal think about what you would do when/if you changed lender when the deal expires.

Terminating Hire Purchase Agreement Early?

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