Buying a car through hire-purchase may suit your finances. But there are also some pitfalls to watch out for, says motoring lawyer Jeanette Miller.
Many motorists recognise the financial benefits of buying their car through some form of hire-purchase (HP) agreement.
But there are a number of potential problems that you should be aware of in advance if you go down this route.
If you are involved in an accident or if your car is stolen, insurers will only pay out what the vehicle is worth at the time and not what it cost to buy.
The problem if you bought the car on HP is that your insurer may only pay out a sum substantially lower than any remaining finance you are contractually obliged to pay.
A type of policy called gap insurance, also known as car depreciation insurance, covers the difference between the sum the insurer pays out and the amount owed on finance.
So for example if you owed £8,000 but the vehicle at the time of the accident or theft was only worth £6,000 as a result of depreciation, the gap insurance would pay the £2,000 difference.
This means you could pay the finance off and rather than keep making monthly payments for a car you could no longer drive.
Loss in car value
Let's say your car is not written off but, because of the accident, it loses more value than would have otherwise been the case.
If the accident was someone else's fault, you should be able to claim against them not just for any repairs but also for loss - diminution - in value.
To be successful, you will need:
- An independent engineer's report of the vehicle following the repairs
- Confirmation that the repairs were carried out satisfactorily by an authorised repairer, and
- If the vehicle has been sold at a loss in value after the repairs, evidence of this should be provided.
Newer, regularly serviced and more desirable vehicles – such as classic cars and motorbikes – are more likely to be found to have lost value in this way.
When the police suspect that a driver of a vehicle has committed an offence they have to send a Notice of Intended Prosecution (NIP) to the registered keeper within 14 days.
They are most commonly issued for offences caught by fixed cameras and are usually accompanied by request to provide the driver details. If the notice is served late the driver should not be prosecuted.
Drivers of leased cars could be lulled into a false sense of security when they receive the notice outside the 14 day time limit.
But the limit only applies to the police sending the notice to the registered keeper, which in the case of most leased cars is the leasing or the finance company.
Provided the police have sent out the first notice in time, the actual driver can still be prosecuted even if they received a notice several weeks later.
Change of address
If you have leased a car and change your address it is vitally important to tell the leasing company to avoid a visit from bailiffs and loss of your driving licence by the DVLA.
- Look at this sequence of events to understand why:
- Vehicle sets off a speed camera.
- The police write to the registered keeper, which in this case is the leasing company.
- The leasing company responds to the police with the driver's details - at the old address.
- The police send a request to the driver to provide their details.
- When the police do not receive a reply a court summons is issued for an offence of failing to provide driver details.
- The driver knows nothing about the court date because the summons went to the old address. They do not go to court and are convicted in their absence.
- The court imposes a fine and an automatic six penalty points.
- When DVLA find out it revokes the driver's licence.
- When the fine is not paid because the driver did not know about it eventually the bailiffs come looking. Bailiffs are really good at finding people even when they have moved.
It is much easier to tell the leasing company.
Lawyer and legal blogger Jeanette Miller is managing director at motoring law specialists Geoffrey Miller Solicitors.
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