Customer Finance Factsheet
Conditional Sale (CS)
Conditional Sales agreements involve a finance company (the creditor)
purchasing a vehicle on behalf of the customer (the buyer), which
allows the customer to pay for the vehicle in installments. This
enables the customer to pay a deposit and take immediate possession
of the vehicle; however, the title to goods remains with the creditor
until the buyer satisfies the conditions of the agreement. In other
words, the finance company own the vehicle until all payments have
Hire Purchase (HP)
A Hire Purchase agreement is much the same as a conditional sale agreement.
The only difference between them is simply that under hire purchase,
the consumer is under no obligation to take title to the goods, whereas
under conditional sale, transfer of title is automatic upon the completion
of the condition (usually of course, the full payment of the vehicle).
Hire Purchase and Conditional Sale agreements are simple and easy
to arrange at a dealership. They are convenient, on the spot, finance
options which offer flexible repayments suited to the buyer. Interest
is fixed so you have a fixed monthly payment. A deposit secures the
vehicle and regular payments are made over a pre-agreed period, usually
You do not own the vehicle until the end of the contract, which means
you cannot sell the vehicle at any time during your contract without
the financier’s approval.
The vehicle can be repossessed if you do not make your payments.
If you have paid a third or more of the vehicle’s value, and
dependent on the type of finance agreement, you can have additional
legal rights and if you default on payments, the financier would have
to obtain a court order to repossess the car.
To reduce monthly payments, a larger payment or lump sum called a balloon
payment can be made at the beginning or end of the agreement period.
Often the customer would pay a balloon payment on the last installment
of their lease.
Guaranteed Asset Protection Insurance (GAP)
This product provides protection for any shortfall liability of the
balance between the market value placed on the vehicle and paid out
by the motor insurer, and the amount required to settle the outstanding
balance in the case of a write-off or if the vehicle is stolen.
Credit Protection Insurance (CPI)
Credit Protection Insurance protects you if you have an accident, fall
ill or lose your job. In any of these circumstances, this product
will ensure you do not fall behind with your finance payments.
The term annual percentage rate (APR) refers to the interest rate,
as applied to finance, for a whole year rather than just a monthly
fee/rate. In short, it is a finance charge expressed as an annual
rate and can be used as a benchmark by which you can judge the cost
An important Decision
A van – whether new or used – is often the second most
expensive purchase you’ll ever make in your life, next to your
home. Because of this, it is important for you to explore and understand
the variety of vehicle financing options available. Only then will
you be able to identify and decide which best suits you before making
a final commitment.
There are a number of ways of obtaining finance for a vehicle including:
• Vehicle manufacturer’s insurance
• Independent finance companies
• High street banks
• Building societies
• Other direct lenders
• Online finance specialists
In weighing up the pros and cons for each of these options, it is
also important to consider things such as the terms offered (eg. the
amount of credit given, amount of monthly payment, number of monthly
repayment installments, APR, etc.)
Opting for dealer finance means:
• The vehicle will be checked to make sure there is no outstanding
finance or that it hasn’t been written off in an accident.
• Finance is secured against the vehicle so it may be easier to
• Because the finance company own the vehicle and has paid money
directly to the retailer, the finance company can assist in handling
merchantable quality disputes.
• Your dealer can arrange a finance package for you there and
then so you can drive the vehicle away at point of sale.
• The vehicle can be used immediately whilst allowing repayments
to be staggered, giving you a better cash flow.
• Agreements are easily negotiated and available.
• Motor finance loans are not repayable on demand unless you default
on the agreement or if the vehicle is written off and there is a shortfall
• If eligible, you can take out GAP and CPI Insurance with the
agreement to protect your ability to repay the loan should you fall
ill, have an accident, lose your job, write the car off etc.
• Interest is fixed so you have a fixed monthly payment.
Other finance options
• Can attract a fee for card transactions
• The limit on your credit card may not be enough to purchase
the car you choose
• Lots of companies offer 0% for the first 6 months but the rates
after this time can be high
• If you don’t clear the balance interest charges can be
• Can be arranged through banks and building societies and are
separate from the vehicle
• Rates can be attractive for certain customers but they are based
on individual circumstances such as term and customer credit history
• Loans may be secured against your home
Keep in mind
• Establish your budget – not just the sales price you
are willing to pay, but also what you will pay over the entire agreement
including the deposit, interest costs incurred (made up of APR) and
other monthly/annual charges such as road tax, insurance etc.
• Compare apples with apples when looking at your repayment
rate, i.e. the Annual Percentage Rate - APR is a measurement that allows
you to compare different finance options offered by lenders, taking
into account the closing fees of the finance companies and giving you
the total cost over the period of the loan.
• Read the small print – make sure you know and understand
what you are signing up to.
If it is a second hand vehicle, make sure it has all its service records
and that they are up to date - beware of such common defects as hidden
write-off damage and outstanding finance. If you’re not using
dealer finance, get the RAC or AA to check the vehicle before buying.