Personal Debt

People quite possibly have difficulty in differentiating between kinds of consumer debt and personal loan providers can occasionally be less than useful in outlining some of these distinctions. A particular difference that's important to be aware of is whether a particular liability is collateralized or unsecured. Take for example a scenario in which you are thinking of buying a car or some other type of automobile. There are a wide variety of methods that you might draw on to pay for your new or second hand vehicle. If you have the funds available, you'll be able to pay fully in cash. Instead you could buy your vehicle through trading in your previous vehicle and paying the balance in cash.

A different way you can do it is by obtaining an unsecured loan from your bank or building society or maybe from a family friend and buying the car employing the loan funds only or in some combination with your own cash funds supplemented by the trade-in value of your own old vehicle. The personal loans acquired by doing this are unsecured and the people who loaned you the funds have no claim over the things you buy with it, in this situation the car. If you acquired the loan from a financial institution or building society or another sort of finance company it's likely you'll realise that such an unsecured loan may be described in the loan papers as 'Credit Agreement Regulated by the Consumer Credit Act 1974' or 'Fixed Sum (blank) Regulated by the Consumer Credit Act 1974'. Do not be confused. Neither of these is a Hire Purchase Agreement and if you buy a car making use of this type of borrowing in whole or in part, the vehicle is actually your property. The loan originator of the finances has no claim whatsoever over the car and can't repossess it on 'security' grounds.

However, you might find when you visit your car dealership to purchase your car that your car dealership proposes that you take out or enter into a Hire Purchase Agreement. You need to listen attentively to the phrases used by the dealer and read thoroughly any documents offered. In the event you acquire a vehicle under a Hire Purchase Agreement, the vehicle isn't your property – at least not yet. The phrase 'Hire Purchase Agreement' basically means that you have signed a binding agreement to hire the car with an option to buy it. Consequently you do not have the right to sell on such a vehicle. Even though you have paid a deposit in cash or otherwise or traded in your own used car as part satisfaction of the Hire Purchase Agreement, that won't enable you to be the owner of the car.

That is why, when you go to get yourself a vehicle it is important to distinguish between financing the deal (in whole or in part) utilizing an unsecured loan and funding it (again, in whole or in part) by into a Hire Purchase Agreement – let's call it simply HP. Step one is to ask whoever is financing the deal and to establish if it is a secured or an unsecured loan you are being offered. If you're being offered HP, you'll have time to look at the agreement paperwork. Ensure that the papers are titled 'HIRE PURCHASE AGREEMENT REGULATED BY THE CONSUMER CREDIT ACT 1974'. An alternative name used in HP documents is 'CONDITIONAL SALE AGREEMENT REGULATED BY THE CONSUMER CREDIT ACT 1974'. These are both satisfactory titles for HP.

If you want to be doubly sure, check out the written text of the HP agreement. The text of the agreement should include a part titled TERMINATION: YOUR RIGHTS'. This section confirms that you have a right to cease the agreement and describes how you can and should set about doing so, if that is what you want to do. On top of that, the writing of a legal HP Agreement ought to contain a part called 'REPOSSESSION: YOUR RIGHTS'. This part explains your legal rights if the HP provider plans to claim the car. There are other standard parts in a legitimate HP Agreement and if the agreement before you ticks all the boxes previously mentioned, then it is very probable that that is what it is. You will not become the owner of a car procured under a Hire Purchase Agreement until you've paid off all the installments due in the agreement and exercised your 'option to purchase' right at the end of the time period of the agreement.

In the event that you enter into an Individual Voluntary Arrangement with your lenders, you must continue to pay the full amount of the monthly HP payment. As a secured obligation, the HP agreement is just like a mortgage loan in that regard. The HP debt cannot be entered into the IVA unless you fall behind on your HP payments. If you do fall behind on your HP payments, the HP provider can, and probably will, claim the vehicle (according you your due privileges within the agreement). Any shortfall that arises would have 'unsecured' status and be entered into your IVA as an unsecured liability. When this occurs it would rank for dividend equally with all other unsecured debts.

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