Hire Purchase Executed Contract

[Graham Hill]

My question is can you withdraw from an executed hire purchase contract prior to delivery of a car

The scenario: Son visits a car dealership and orders a new car on 12 week delivery. He decides to finance on a 5 year HP agreement. He has signed a purchase order for the car and paid a deposit - no problem with this.

At the time of placing the order he was asked to sign the HP documents which he did. The dealer signed the documents on behalf of the lender which he was entitled to do, thereby executing the agreement. Son was given a copy of the executed agreement - all fine so far.

4 weeks into the order period son has been offered a much lower APR from his bank so wants to cancel the HP agreement but is being told by the dealer that the agreement has been executed so is now legally binding. He is now beyond the 14 day cooling off period so cannot cancel even though the car hasn't been delivered. Can he cancel the agreement. There is no delivery date on the agreement. There is a delivery date on the purchase order.

He doesn't want to withdraw from the purchase, just cancel the agreement as it has been executed but not commenced. What is his legal position please?

GH

[R0b]

Re: Hire Purchase Executed Contract

Morning Graham Hill,

Your son is unlikely going to have any recourse and be able to cancel the finance agreement simply because he's now found a better deal and even more since he is beyond the 14 day withdrawal period. However, your or himself should check the terms of the agreement in case there is anything in there that might assist though from my experience its highly unlikely.

If he is still eligible for the loan from his bank, he might want to consider taking out the loan and using that to pay off the finance agreement. Assuming he has made no instalments because he's not received the car yet he should be able to pay it all off through an option called "Early Settlement". From what I remember about this type of settlement its a sort of discount which means that you pay off the actual total price and not the interest or charges that are remaining on the agreement. To give you an example:

total credit for car = £10,000
Interest of that total credit = £2,000
Monthly instalments paid over 1 year (inc. interest) = £1,000

Now if you have already paid 6 months and ask for an early settlement figure, the lender will give you this which discounts any interest on the remaining balance. So in this case it would be £6,000 (remaining balance - £1,000 (interest left) = £5,000 to pay on early settlement.

You wouldn't get a rebate on the interest already paid. In your son's case, I can see no reason why the above can't apply because the agreement has been signed and you've not paid any interest so all of this should be wiped off the total amount payable. I can't quite remember if the discount extends to any charges under the agreement not yet paid or if it is interest only.

To exercise this right, your son would need to write to the lender and request an early settlement quote. The lender is obliged to tell him in writing the early settlement quote and allow 28 days for that amount to be paid, though he is not obliged to pay it if that day passes. Alternatively, he can call up and ask what the early settlement quote is which they should be able to do but make sure to do this before he decides to get the loan!

Other than that, I can't think of anything else which might get him out of it. Maybe next time explore his options before he chooses to go down one path.

[Graham Hill]

Re: Hire Purchase Executed Contract

Hi Rob,

Thanks so much for your detailed reply and I truly appreciate your help. However, the point here is that the deal wasn't there with his bank when he signed the documents and frankly, at the time it looked like a pretty good deal. And the whole point of giving you a cooling off period of 14 days is to give you the opportunity to shop around and convince yourself that you have the best deal. That of course is fine if the goods are available immediately but when you have signed the contract 3 months before you see the goods, in this case the car, it seems wrong that as no benefit has passed to either side, you can't withdraw. In my own case I always finance my car on contract hire, either personally or through the business, and I don't sign documents until the car arrives at the dealership. Incidentally, having spoken to his bank they said that he could take out the loan at the discounted rate with drawdown when he needs to pay for the car. In the meantime he can withdraw from the agreement by just putting it in writing. Thanks again Rob, I'll pass on your thoughts regarding cancelling the agreement once its been activated.

[R0b]

Re: Hire Purchase Executed Contract

Quite often consumers get confused with "cooling off period" and "withdrawal" in that they sound similar but are not exactly the same.

The cooling off period normally applies when you do something over the phone or on the internet where you have 14 days to to cancel beginning on the day after that service/goods are received and without penalty save for any postage costs.

However, a withdrawal period is slightly different and particularly applies to credit agreements. You have the right to withdraw from the agreement 14 days beginning on the day after it has been signed by both parties but the slight snag is that although you withdraw from the agreement and it is cancelled, you must:

(1) repay the credit and interest within 30 days and
(2) it also does not cancel the agreement to purchase the goods so that would need to be paid for.

Obviously in your sons case it would favour him as he still wants a car and has found a better deal but for many other consumers, they simply think that the meaning of withdrawal is to get out of the agreement completely and without penalty but that is strictly not the case. Always best try to use the correct terminology where possible because if you don't then it could cause confusion and potentially problems later down the line.

As for your point about shopping around, I'm afraid thats the way the cookie crumbles and there is likely going to be a better deal not long after you get a good deal yourself - it's always a gamble and has happened to me on a number of occasions, it is annoying.

[Graham Hill]

Re: Hire Purchase Executed Contract

Hi Rob, Again appreciate the time and effort - you're a good egg! My understanding was that you have a 14 day 'cooling off period' as shown on the Which site as below. I agree that the proper use of terminology is important so I'm now confused. Think I might take some legal advice just to clear this up, I'll let you know if I do. Thanks for all your help Rob, have a great Christmas:

Your right to withdraw from a credit agreement

In addition to the five-day cooling off period, you have a 14 day cooling off period in which to change your mind and cancel a credit agreement.
You have to repay the amount borrowed along with any interest that’s accrued up to the point at which you cancel.
There are some agreements that can't be cancelled, for example where the amount of credit exceeds £60,260 and for agreements secured on land.
The 14-day cooling-off period starts from the day the agreement is concluded or if later, from when you receive a copy of the agreement.
For credit card the 14-day cooling off period starts from when you receive notification of your credit limit.