What Is A Conditional Sale? Your Guide To Car Finance Options

A conditional sale is a type of car finance designed to be more affordable than other options. With a conditional sale agreement, you can buy new or used vehicles without needing to pay one lump sum upfront. Instead, you’ll make monthly payments on the vehicle after purchase until it’s paid off. But how does this differ from hire purchase? And what are the pros and cons of entering into a conditional sale agreement with your finance company?

This guide will answer those questions and offer other pieces of information about conditional sale agreements. Putting you in a position of strength.

What Is A Conditional Sale Agreement?

A conditional sale agreement is a type of car finance that allows you to buy a new or used vehicle even if you have bad credit. It’s similar to leasing, but the difference between the two is in ownership. You own the vehicle after making all your payments, not just during the term of your agreement.

Conditional sales agreements are also sometimes referred to as conditional purchases or pay-as-you-drive contracts. They basically purchase agreements between you and the finance company instead of an outright sale from one party (a dealer) to another (you). In this case, it’s not only your money on the line; it’s also theirs! 

You will need to be careful if you want to get a conditional sale with bad credit. Lenders won’t want to trust people who are more likely to miss their payments. However, it is possible to still get a conditional sale finance deal with bad credit. The trick is finding the right lender for you. We could help pair you up with a lender that may view your circumstances differently.

How Does A Conditional Sale Differ From Hire Purchase?

In a hire purchase agreement, you pay the full price of the car in instalments over several years. When your payments are finished and you’ve made all your payments on time, that’s when you get to keep the car.

In contrast, with a conditional sale agreement, you’ll usually only pay monthly instalments. And by the end of the agreement, you will be certain to own your car outright. You make repayments until you pay off the car’s debt.

What Are The Pros Of Conditional Sale Agreements?

  • The option to pay off the car early. In this type of agreement, the buyer and seller can agree to settle before the end of their agreed-upon term. For example, if you want to pay off your loan after two years instead of three, you may be able to do this. However, you will need to communicate this with your lender first.
  • If your life circumstances change and you need an earlier exit from your financing arrangement than originally planned. For example, if you get laid off or move, you may have the option to return the car to the lender. This could give you some relief if your circumstances change.
  • You can have an agreement between one and five years.
  • Your monthly payments will stay at a fixed price throughout the contract.

What Should You Remember When It Comes To Conditional Sale Agreements?

There are a few notable disadvantages to conditional sale agreements. First, if you miss any payments on your car loan, the dealer can repossess the vehicle. This is because the car acts as collateral in your contract. In addition, many conditional sales agreements include clauses that limit your ability to resell or use the vehicle as collateral for another loan. If you want to sell your car yourself or use it as collateral for a new loan (for example), then you’ll need permission from the dealer before doing so.

Because of the nature of the agreement, your car doesn’t belong to you till the end of the agreement. This means that you cannot sell or modify your car until you own it yourself. If you would like a modified vehicle, it may be best to contact your lender before you sign the contract.

You will become the owner of the car at the end of the agreement. Meaning if you don’t want to own the car at the end of your contract, you may be best to avoid it. And opting for a finance product, such as a PCP agreement may be more beneficial. 

A Conditional Sale Is A Type Of Car Finance Designed To Be Affordable

However, there are some drawbacks. This can be a good way to get your dream car if you have bad credit and cannot afford to buy it outright. But, it may still cost you extra in the long run. If you want to improve your car finance deals offered to you, check out ways to improve your credit score here.

Conditional sales work by linking the value of your car with its purchase price and monthly repayments. If you can’t make payments on time or at all, then the lender can repossess your vehicle. So make sure you find a deal that you can make payments on throughout the agreement.

To Finish…

At the end of the day, it’s all about knowing what you want and how much you can afford. If you want a car but don’t have enough cash to buy one outright, then a conditional sale may be a good option for you. You don’t need any special qualifications or credit history for this type of financing – just a steady income and proof of address.

If you’re still unsure about what rates may be offered to you, get in touch with our brokers. They can guide you through the process and could help you depending on your financial circumstances. Want to find out more? Get a quote and find out here.

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