Conditional sale (CS) finance is another option to consider when it comes to buying a car. Here we’ll explore the details of CS finance and look at how it compares to other car financing agreements.
Conditional sale finance is a type of credit agreement where a car finance provider buys a car on your behalf. You repay the loan, which includes interest charged on the amount borrowed, in the form of fixed monthly payments over a prearranged time frame.
Legal ownership remains with the finance provider until you have paid the loan back in full. Once you’ve made your final payment, ownership of the car automatically passes to you. Unlike other types of car finance, there are no final option-to-purchase fees or other costs to pay at the end.
Although the lender has legal ownership of the car during the agreement, you will be the registered keeper. Your name will appear on registration documents and you’ll have full access to the car. You are also responsible for any maintenance and servicing that might be needed during the agreement, such as MOTs and repairs.
A CS agreement doesn’t usually come with any mileage restrictions (unlike other finance arrangements, such as personal contract purchase). This makes it a good option for buyers who drive frequently or regularly make long journeys, because they won’t need to worry about any excess mileage fines.
We don’t currently offer CS finance at Oodle – you can get a personal car loan with us (representative 14.9% apr) – but it’s always useful to compare different finance deals so you can make the right choice for you.
A conditional sale agreement is an agreement in which you, the buyer, will make regular monthly payments (that include interest) to the lender or finance company who bought the vehicle on your behalf. It usually works like this:
You pick a car you want to buy from a dealer.
You contact the finance company and, following credit checks, a conditional sale agreement is drawn up. The terms will include the total cost, interest rate, contract length and the monthly payment amount.
The lender will then buy the vehicle upfront from the seller for full price and you can then take the car from the dealership. Legal ownership will stay with the lender until you have paid the loan back in full.
You will pay a deposit at the beginning of the agreement, and then pay off the remainder of the balance, plus interest, in fixed monthly payments over a pre-agreed period.
After all of the monthly payments have been made, ownership of the car is then automatically transferred to you with no extra payments or fees needed.
Advantages
Fixed interest rates and terms of agreement mean regular, affordable monthly payments.
No mileage restrictions or damage costs mean you can use the car as much as you want and don’t need to worry about unwelcome fines at the end of the agreement.
Full ownership of the car once the final payment has been made; no extra fees are needed to complete the transfer.
Conditional sale agreements are generally transparent and straightforward, so there are unlikely to be hidden costs or charges.
Disadvantages
The monthly payments can be higher than some other car finance deals (like PCP agreements) because you are paying off the entire value of the car, not just a portion of it.
Because you won’t legally own the car for the duration of the agreement, you cannot sell or make modifications without permission.
You are locked into ownership of the car once the final payment is made, which might not be ideal if your circumstances change.
There is a risk the car could be repossessed by the lender if payments are missed.
If you have a poor credit history you will likely pay a higher rate of interest – this can increase the overall cost of the loan.
You’d be forgiven for thinking that conditional sale and hire purchase agreements are one and the same because they both involve paying off a car loan over a fixed amount of time. But while they are very similar, there are some key differences.
In a CS agreement, ownership is transferred to the buyer as soon as the final payment has been made. With HP, you must make an additional small ‘option to purchase’ payment to legally own the car.
With both a CS agreement and an HP deal you pay off the entire cost of the car, plus interest. However, there are no additional mileage restrictions or damage costs to worry about with CS, meaning that HP can sometimes be slightly more expensive overall. On the other hand, monthly payments can be more flexible with HP, and you can choose to return the car at the end.
Both HP and CS have similar policies when it comes to missing payments and repossession. In both agreements, if you miss payments, the lender could, as a last resort, take the car back.
To recap:
Ownership transfer: with HP, you’ll need to pay an additional option-to-purchase fee if you want to keep the car at the end of the agreement. CS automatically transfers ownership to you after the final payment.
End-of-agreement flexibility: with HP you have the option of returning the car at the end of the term if you choose not to pay the option-to-purchase fee, while CS commits you to ownership.
Missed payments: Both agreements allow the lender to take back the car if payments aren’t made, as the lender holds legal ownership during the agreement period.
Conditional sale finance could be a good option to explore for anyone looking to spread out the cost of buying a car. It has fixed monthly payments, no hidden fees, and automatic ownership transfer at the end of the agreement. This makes it an appealing choice for those who know they’d like to own their vehicle outright at the end of the loan term.
When it comes to taking the plunge with car finance, understanding how CS finance works and how it compares with other car finance options will help you make the best choice for your circumstances.
Have questions about car finance? We can help!
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