Hire Purchase - 50% rule

simplymegreg

Hi there,

Just a query regarding hire purchase.

If you are in a hire purchase agreement and you no longer require a car and therefore need to get rid, I suppose the easiest way to do this would be to pay off 50% and hand it back?

This would be as opposed to paying off 100% via taking out a loan, selling the car and then using the proceeds to pay off the 100% loan. However, this method would probably be unwise as you wouldn't get much for the second hand car considering the selling conditions correct?

Anyway, so assuming you go with the 50% rule, and you have not yet reached the 50% mark can you still terminate the agreement and not have the yet continue to pay off instalments to get to the 50% mark. Would the shortfall coming up to the 50% mark be eligible to be paid in monthly instalments OR would the shortfall be demanded as a lump sum to be paid immediately?

Would it also be out of the question to negotiate with the finance company aside from all of this to see if the total sum payable could be reduced after telling them you no longer want the vehicle?

Many thanks

willsonline

I have exp. of this, please check with your finance company first but all i did was sell the car on the private market...paid the finance company their outstanding money and kept the remaining amount. Every contract has the 50% clause but I hadn't got no where near that.

Should be pretty simple, obviously do the maths though!!

simplymegreg

Thanks for the reply,

Yea i guess checking with the company would be the best idea.

The problem of negative equity looms however, there would still be a shortfall even after the sale at today's market prices. I suppose the shortfall would not be as much as it would be if pursuing the 50% mark 'route' however.

Also there is the added problem of a potential buyer doing a HPI check, seeing outstanding finance is on the car and they wouldn't touch it.

I would still be interested to know that if you do go down the pay 50% and hand back route, and if you hand back the car before the 50% if the shortfall leading up to 50% is payable as a lump sum immediately or can be given in instalments though.

standupguy

You can only terminate under the half rule if you have actually paid half the HP price or if you pay any shortfall at time of termination to take the total paid up to a half. You cannot pay shortfall on instalments.

~Brock~

standupguy wrote: »

You can only terminate under the half rule if you have actually paid half the HP price or if you pay any shortfall at time of termination to take the total paid up to a half. You cannot pay shortfall on instalments.

Not true I'm afraid.

You can terminate the contract at any time. Your obligations are to return the vehicle (having taken reasonable care of it), and for 50% of the total amount payable, less what you have already paid. You are also liable for any arrears outstanding at the point of termination.

As to exactly when this money is payable, the Consumer Credit Act does not specify a time limit as to when this is payable by, Section 100 of the CCA 1974 simply states that the borrower is liable to pay the outstanding balance. Most people assume that it is payable straight away, but the fact is that a lender cannot refuse termination just on the grounds that the outstanding liability has not been paid or cannot be paid immediately. Obviously the borrower remains liable for this amount, and the opinion that seems to come from the courts is that this sum should be paid in full by the natural end of the original agreement.

I personally do not agree with this line because at the point of termination the original agreement no longer exists so how can the original term of the agreement be of any relevance anymore?

simplymegreg

Thanks Brock

It would appear that the area which my question relates to is quite muffled and unclear. Perhaps it would be a good idea to put the question to the CAB?

Putting the question to the finance company would presumably just end up with the answer of "pay immediately" as obviously this is in their best interest.

~Brock~

I agree that this area is unclear - unfortunately the Act itself is worded in such a way to create this situation in the first place. The fact remains though that there is nothing in the Act that states that any termination figure must be paid BEFORE the agreement is terminated. The obligation and liabilty remains for the figure to be paid, but a lender cannot refuse the termination request on the basis that it has not been paid. I have had lengthy discussions with the OFT about this and can assure you that this is correct.

To be honest, there is often not a lot of point in terminating early anyway, because you still leave yourself the liability for the 50%, which will have to be paid at some point, plus you completely lose any value contained in the vehicle.

Here's an example.

You finance a car for 10,000 over 4 years. The total amount payable is £14,000.

After one year (£3500 paid) you decide you don't want the car anymore. If you VT then you lose the car, plus are still liable for £3500.

However, if you arrange for the vehicle to be sold (with the lender's permission), you may realise - say - £7000 from the sale of the vehicle. The settlement figure is approx £8000 so you only have to find £1000.

I know the above figures are hypothetical, but they aren't a million miles out.

~Brock~

I would just add to my last post that if you are in arrears to the point where the lender has already served a default notice and terminated the agreement, then the borrower can no longer terminate themselves.

simplymegreg

~Brock~ wrote: »

Here's an example.

You finance a car for 10,000 over 4 years. The total amount payable is £14,000.

After one year (£3500 paid) you decide you don't want the car anymore. If you VT then you lose the car, plus are still liable for £3500.

However, if you arrange for the vehicle to be sold (with the lender's permission), you may realise - say - £7000 from the sale of the vehicle. The settlement figure is approx £8000 so you only have to find £1000.

I know the above figures are hypothetical, but they aren't a million miles out.

Thanks for your advice again - unfortunately I have lost you here. How is the settlement figure £8000? Surely in order to settle you need to pay the 14k. So if you have already paid 3500, subtract that from 14k which leaves 10.5k.

Then subtract 7k (the value from the sale of the car) away from the total amount still to pay (10.5k) and you are left with a 3.5k shortfall?

Sorry if I have misunderstood

~Brock~

simplymegreg wrote: »

Thanks for your advice again - unfortunately I have lost you here. How is the settlement figure £8000? Surely in order to settle you need to pay the 14k. So if you have already paid 3500, subtract that from 14k which leaves 10.5k.

Then subtract 7k (the value from the sale of the car) away from the total amount still to pay (10.5k) and you are left with a 3.5k shortfall?

Sorry if I have misunderstood

The £14k is if you took the loan out over the full term. After one year your balance has come down to £10.5k, but you would be entitled to an interest rebate if you settled at this time, giving a settlement figure of £8k. All very approximate.