Types of vehicle finance
Hire purchase (HP)
The lender owns the vehicle until the loan is fully repaid, including the final ‘option to purchase’ fee. If you buy a vehicle with outstanding hire purchase, the lender may reclaim the vehicle.
A conditional sale is an agreement where full title of the asset remains the property of the finance company unless certain conditions are met. These are usually when all payments are made, and made on time. There may also be conditions placed covering the insurance and maintenance of the vehicle. If the agreement is not settled, the finance company still owns the vehicle.
Similar to other credit agreements, in this case the purchaser does become the owner of the vehicle at the start of the agreement. If you are concerned because the vehicle you are looking at has this type of finance, you should seek clarification from seller of the vehicle.
Lease, contract hire
The vehicle is owned by a leasing/hire company and ownership will not pass to you unless the finance is settled.
Personal contract purchase (PCP)
The lender owns the vehicle until all conditions are satisfied, usually after all payments being made. Often the final payment is a large ‘balloon’ style payment which can often be guaranteed by the lender.
The lender has no claim on or interest in the vehicle but has registered the existence of a personal loan as part of the Governments Responsible Lending drive. If you are concerned because the vehicle you are looking at has this type of finance, you should seek clarification from the lender and the seller of the vehicle.
If the vehicle has ‘miscellaneous’ finance on it, you should obtain more details from the finance company and the seller of the vehicle.
If you are buying from a dealer, you may come across this type of finance on your HPI report. Talk it over with your dealer, check their liability and get confirmation in writing that they will clear the finance on the car you are buying. Unit stocking is a common type of finance agreement used by motor dealers to enable them to fund the vehicles on their forecourt.
A form of dealer finance used to enable dealers to fund demonstration vehicles. Talk it over with your dealer, check their liability and get confirmation in writing that they will clear the finance on the vehicle you are buying.
Bill of sale
This is a complicated area of lending. A bill of sale might give the finance company right of ownership over the vehicle and you would be advised to make further enquiries with the finance company before purchasing. If you are still unclear as to the finance status of the vehicle, we recommend you contact Citizen’s Advice Bureau (www.citizensadvice.org.uk) for further advice.