Hire Purchase - Help

Goingroundincircles

Hi everyone,

I'm on a (long) debt free journey and we spend a good chunk of our budget on car related costs - loan, hire purchase fee, insurance, fuel etc.

I took out a hire purchase agreement in a rush in Aug 2016 as I was car-less and desperate. I'm ashamed to say I don't actually know the ins and outs of how they work. I think I pay the monthly instalment on £172 for 4 years and then either pay a chunk of money to keep the car or they sell it to cover that cost and I'm car-less again.

Does anyone have any knowledge of HP agreements? Can you possibly get out of them early? Are there any penalties?

Thanks in advance

nickcc

I'm sure more Knowledgeable members will come along but this doesn't sound like hire purchase. When I had hire purchase many years ago you had a set period to pay back the full amount owing after paying a deposit, there was no agreement that a lump sum was required at the end of the agreement. You could also request an early settlement figure which allowed you to pay off the balance owing.

neilmcl

First off, are your on a genuine HP agreement or actually a PCP? The difference is with a standard HP you pay off the total value of the care plus interest over the term and the car is then yours. With a PCP a final payment, known as a balloon payment is deferred to the end of the finance period and you essentially pay for the depreciation plus the credit amount interest and at the end you have a choice of paying the balloon and keeping the car or handing it back and walking away, or using any equity (unlikely) for a new car.

The confusing thing for a lot of people is a PCP agreement is still actually a form of Hire Purchase and will quite often be referred to as such on your agreement paperwork.

With both HP and PCP you are covered by the Consumer Credit Act which allows you to walk away after having paid 50% of the total amount payable plus any fee for excessive wear & tear, this is known as Voluntary Termination (VT).

Le_Kirk

1. Take deep breath
2. Find finance documents
3. Make cup of tea/coffee
4. Read documentation
5. Report back here

AdrianC

Goingroundincircles wrote: »

I took out a hire purchase agreement in a rush in Aug 2016 as I was car-less and desperate. I'm ashamed to say I don't actually know the ins and outs of how they work. I think I pay the monthly instalment on £172 for 4 years and then either pay a chunk of money to keep the car or they sell it to cover that cost and I'm car-less again.

That sounds like a PCP. The "chunk of money" at the end is money you've borrowed, but either repay and own the car, or cancel by handing it back. It's known as the "balloon" or GFV - Guaranteed Future Value.

Can you possibly get out of them early? Are there any penalties?

You have a legal right to cancel the deal, penalty free, once you've repaid at least 50% of the total finance - on a PCP, that includes the balloon, because that's money you've borrowed. 18 months into a 4yr deal? Forget it, you aren't even close.

So you need to ask them how much the "settlement value" is. That's the amount you need to pay to hand the car back and close it all down. Basically, you've contracted to a four-year deal that will make them a certain amount of money, and you're now asking to go back on your word, less than half-way in. They're entitled not to be out of pocket because of your change of mind.

Goingroundincircles

Thank you for all your comments. I've dug out the paperwork and although I wouldn't consider myself stupid, there are so many different figures it's difficult to make heads or tails of.

The general gist is I must make 48 payments of £170.99 from Sep 2016 onwards followed by a final payment of £5,740.20. It looks as though the total cost including interest is £18,117.73 and it does state that I have the right to terminate the contract by returning the vehicle after having paid 50% (£9,058.86).

I'm not sure the numbers quite add up as I paid a £3,300 deposit, the garage contributed £1,400, the final payment is £5,740.20 and 48 months of £170.99 is £8,207.52 which I total as £18,647.72.

The important figure is I must have currently paid £7,777.82 meaning I'm £1,281.04 from having paid 50%. That's nearly another 8 months of payments. Am I right?

So my question is, what's the best way to deal with these things? Obviously I should have thought it through before I took it out but here we are. It's not that I desperately need out of the contract I'm just weighing up my options as someone with no spare money at the end of the month and with a lot of other debt to repay.
If I do end the contract early I will obviously be car-less and have no savings to buy another. Am I better off seeing it through, although I'll have no savings to pay the final payment and be able to keep the car at the end of the 48 months? Or cutting my loses?

These HP things are awful, I'm basically paying a lot of money to hire a car and will have nothing to show for it at the end of 4 years and £12,000... Silly me.

missile

I would suggest you think carefully before you make another rash decision.

Can you afford the repayments? If not ask finance company for a VT settlement figure.
Do you need a car? Most likely it will be best for you to keep your PCP until termination.
At the end of 4 years you buy another car (on finance) or raise finance for the balloon payment.

I very much doubt the figure on the agreement are wrong. If you think they are, complain to the finance company.

AdrianC

Goingroundincircles wrote: »

Thank you for all your comments. I've dug out the paperwork and although I wouldn't consider myself stupid, there are so many different figures it's difficult to make heads or tails of.

The general gist is I must make 48 payments of £170.99 from Sep 2016 onwards followed by a final payment of £5,740.20. It looks as though the total cost including interest is £18,117.73 and it does state that I have the right to terminate the contract by returning the vehicle after having paid 50% (£9,058.86).

I'm not sure the numbers quite add up as I paid a £3,300 deposit, the garage contributed £1,400, the final payment is £5,740.20 and 48 months of £170.99 is £8,207.52 which I total as £18,647.72.

The total cost of the car to buy was deposits + amount borrowed. You didn't borrow the deposits, so they're not part of the 50% VT calculation.

The amount borrowed, including interest, is (monthlies x months) + balloon = just over £14k. It's 50% of this figure - (monthlies x months) + balloon - that's the relevant one for VT. That's about £7k. After 19 months, you've repaid £3,250ish. You've got a long way to go... Another 22 months, which'll take you to 7 months shy of the end of term.

The monthlies include the interest on the entire amount borrowed - including the balloon. You don't say the interest rate... If it's 10%, then the purchase cost would have been a bit over £15k. If it's 7.5%, then about £16k. If it's 5%, then a bit under £17k. Obviously, the rest to the £18.7k is the interest...

If I do end the contract early I will obviously be car-less and have no savings to buy another.

Correct.

Am I better off seeing it through, although I'll have no savings to pay the final payment and be able to keep the car at the end of the 48 months? Or cutting my loses?

Only you can say that for sure. But it WILL cost you to get out of the deal now - you are nowhere near the VT point.

These HP things are awful, I'm basically paying a lot of money to hire a car and will have nothing to show for it at the end of 4 years and £12,000... Silly me.

A bit shy of there - you'll have paid £3,300 + (48 x £170.99) = £11,500. £240/month, in other words, if you average the deposit out.

But you've been driving around for four years in a car that you couldn't (I presume) afford to buy outright. And that's why PCPs are so popular. During that time, it's depreciated by somewhere around £10k - purchase price minus balloon - so it's basically cost you a grand or so for the finance.

macman

You would be better off getting a personal loan in a couple of years to cover the balloon payment, then owning the vehicle outright.
I can't see how you think you'll be better off by doing an early termination, since you have no deposit available for a replacement vehicle (even a £1K banger), unless you can manage without a car.
Did you seriously think you could terminate a 4 year deal after just 18m without compensating the lender for your breach of contract?

almillar

These HP things are awful, I'm basically paying a lot of money to hire a car and will have nothing to show for it at the end of 4 years and £12,000... Silly me.

Or, you're paying £3,000 per year to drive a car you like, and don't have to worry about selling it at the end. Some people would call that cheap motoring!

The way these (PCP) things work means you'll be very near the end of your term before you have paid half the agreement - most of the money is at the end. If you can afford to, see it through, if not, come back for further advice. I haven't actually seen a reason for getting out of it apart from 'buyer's remorse'.

ratrace

Op, Thats how pcp's work unfortunately, people see the lowish monthly payments on cars they most likely cannot afford to buy outright

Personally if it was me i would just carry on paying the payments then when the time came i would refinace the baloon paymet and just keep the car and run it into the ground, the longer you keep the car the depreciation avaergaes out over time so its not that bad in the very long run

the mistake a lot of people make is to keep chopping and changing cars frequently because they want the new model or they are sick of the one they got this is a very expensive way to run a car

Mse - i have an vauxhall astra j its worth around £3,000 yet i have work mates who turn up in £30k pcp cars yet we all get to work and get home every day form 9-5 the cars are just sitting in the carpark losing money

the point im trying to make is stop trading your time and effort making others rich for the sake of a car