The latest news in High Street business regarding Comet electrical stores, reminds us all of just how parlous the world of credit and financing really still is. The availability of credit did a great deal to improve sales and stimulate periods of quiet sales for many years, but my own take on matters related is that credit historically, has simply been far to easy to achieve. Once upon a time, credit or the ‘never never’ method of purchasing was a looked down upon way of purchasing your luxury goods, but today, its almost replacing hard cash at the counter.
During my times on the showroom floor, 90% of the car deals would involve finance or car credit and most manufacturers offer some really tempting deals to make cars for want of a word, affordable. Most of the transactions would go through without fuss, but sometimes you would see a disaster on the horizon in the form of poor credit history and in these cases, I would try to steer the customer away from a finance refusal simply to avoid time wasting or potential embarrassment for the customer or myself – telling a customer that they are not fit to handle a sponge let alone a car loan is never easy.
Even the marketplace for customers with poor credit that normally would never qualify for car credit (known in the trade as black rats or chuckie duffers) could jump behind the wheel of a nearly new Lacetti or a whole raft of other truly dreadful cars thanks to sub-prime lenders – one or two of which have since gone bust. Yes Car Credit being a prime example. As somebody once told me ‘poverty is big business’ and I would often wince at some of the extortionate repayment rates and wonder whether anyone could be so desperate to buy a three year old ex-Motability base model Meriva in 90 day blue for 29.9% APR.
But where I do feel sorry for, is people’s changing circumstances in the real world. I have just come off the blower to a friend in the North for a catch up chat, only to be told he’s hit the skids financially and really struggling with life. Turns out his wife has been replaced in her job as a supervisor for a call centre as her company slashes back operating costs outsourcing some departments to Asia. Their circumstance is compounded by the fact they have three teenage kids – one of which is at Lancaster University and a dog that eats its own body weight in food twice a week.
It transpires that she can simply not afford to keep the repayments going for her tidy little Audi A3, bought at a time where life was good. Though she is working again, her salary is more than half what it used to be and there is no way the repayments can be met for much longer without getting into serious debt. The question I was asked was where do they stand regarding finance payments that can not be met and, would they be liable for repossession should their situation hit a critical level. Well there is good news and bad news, so lets start with the good news;
All motor sales finance transactions which are based on an amount totalling at £25,000 or under, are what is known as a ‘regulated agreement’ under the Financial Services Authority (FSA) rules. With regards to repossession, if you have paid a third or more of the outstanding balance, your car can not be snatched back with a court order being placed upon you. This gives you final chance to get your situation in order if possible and avoid being blacklisted or receiving a County Court Judgement; in layman’s terms, being made bankrupt.
In the event of more than half of the outstanding balance being paid, you can exercise your right to make a ‘voluntary termination’ of the credit agreement. In essence, you can hand the car back to the finance company and so long as the car is in reasonable condition with just fair wear and tear being evident, you pay no more and both the car and the outstanding debt is gone. These two rules are called halves and thirds. What also bears thinking about, is that sometimes the lender will be prepared to re-negotiate the outstanding balance or payments, after all, they don’t want the hassle of collecting and selling on the car.
Now, this is not a get out of jail card by any stretch of the imagination. By opting out of the finance deal, you will certainly scupper any chance of future credit with that particular lender, and may also reduce any chance of credit via any other finance house. Be sure to check this is your last resort before applying your right to walk away from the car, but there again, don’t fall into serious debt over a motor car either. Obviously, don’t just take my word for it, do your research but remember, there is more to life than a shiny new motor on your drive should your personal circumstances dramatically change. Its all in the small print on your credit agreement.