Consumer Credit Flashcards
Types of credit agreements
Hire Purchase
Ownership of goods does not pass to the borrower until repayments is made.
For an agreement to qualify as HP, the buyer must have the option to buy the product at some point (usually when the last paid is made) or the product is returned and terminate the agreement
Personal Contract Purchase (PCP)
Low repayments and a last ‘balloon payment’ – over the course of the agreement, the customer pays a series of monthly instalments that cover the interest and part of the borrowed capital, meaning at the end of the contract a proportion of the original capital will be outstanding.
Credit Sale
Goods are purchased at the cash price. The buyer can either pay interest or take advantage of an interest free credit period – typically 12 months in duration.
Repayments are made in instalments and the buyer has legal ownership of the goods as soon as the contract is made.
The goods cannot be returned of the buyer changes their mind, other than under the five-day cooling period afforded by the CCA.
The seller cannot repossess the goods other than via court remedies. A credit sale has prescribed terms which include the identity and address, seller, duration, credit amount etc.
Conditional Sale Agreement
is a credit sale agreement, but with a clause or condition that title to the goods does not pass until the final payment is made.
It works like HP - the difference is HP has an option to purchase the goods for a fee.
Property lease
contracts between a landlord and a tenant that cover the renting of property for long periods of time, usually a period of 12 months or more. The lease has very specific details on the responsibilities of both parties during the lease and it includes the necessary information to ensure both parties are protected.
Finance leases/ capital leases
The sum of the lease rental payments over the lease term closely matches the initial cost of the asset. The lessee covers the cost of maintenance, insurance and tax. In return the lease will contain a bargain purchase option.
Operating leases
are not designed for final purchase and as a result the rental price does not cover the value of the item leased.
The term of the lease does not match the expected life of the asset – meaning the sum of the rental payments over the lease term falls short of the initial cost of the asset - residual risk.
Credit Cards
Known as revolving credit facility where both additional advances and monthly repayments are permitted by the lender within an agreed credit limit. Credit cards borrowing represent the largest proportion of unsecured consumer credit.
