Conditional Sale Agreement

Definition

A conditional sale agreement is a type of loan that enables you to spread the purchase of an asset, i.e. a car or property, over a fixed repayment period.

Whilst you have full access to the asset throughout the agreement, the goods are legally owned by the finance provider until the final payment has been made.

Conditional sale agreements such as hire purchase are particularly popular among car finance customers, as it enables individuals to spread the cost of a vehicle into affordable monthly payments.

How a conditional sale agreement works

When it comes to car finance, a conditional sale agreement (or hire purchase) is comprised of equal, fixed monthly repayments over an agreed term length.

Your monthly payments will be calculated based on the amount borrowed and the cost of interest. Typically, individuals with an excellent credit rating will pay less interest compared to individuals with a poor rating.

Depending on the lender, you may also be required to pay a deposit to secure the agreement.

Once you reach the end of your contract and the final payment has been made, the car is all yours.

Am I eligible for a conditional sale agreement?

If you are 18 years old or over and hold a full UK drivers license, you can apply for a conditional sale agreement.

However, your eligibility will depend on a number of other factors, including your income, credit history, and affordability.

It’s also important to remember that each lender also has its own lending criteria, so whilst you may not meet the eligibility requirements for one, you could be approved with another.

Pros and cons of conditional sales agreements

Buying a new vehicle outright can be expensive and will often require months or even years of saving. But with a conditional sale agreement, you can spread the cost over affordable monthly payments. 

This makes car ownership much more accessible, and often means you can get behind the wheel of a car that would otherwise be unaffordable.

Conditional sale agreements are also more widely available compared to other types of loans, such as personal loans or PCP agreements.

Of course, like any type of loan, you will be charged interest for the amount borrowed. As a result, a conditional sale agreement is often more expensive in the long-term, compared to purchasing a car outright.

Your right to end a conditional sale agreement

Unforeseen circumstances such as job loss or illness could result in you needing to end your agreement early. Should this happen, you have the right to cancel your agreement through voluntary termination.

However, voluntary termination is only possible if you have repaid at least 50% of the outstanding finance. If you haven’t, you will need to make up the difference before you can end the agreement.

Other car finance options

A conditional sale agreement is a popular cost-effective way to purchase a vehicle, but it may not suit everyone. The good news is there are plenty of alternative car finance options such as car leasing and PCP, that provide an equally easy, affordable way to get behind the wheel of your dream car.

To discuss your finance options with a friendly car finance specialist, simply complete our quick and easy no-obligation application form.