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Conditional Sale (CS) Car Finance | Explained.
There is a wide range of finance available for car purchases, each tailored carefully to fit the different needs of potential buyers.
While this degree of options is extremely beneficial, it can also be confusing - thankfully, we at Clifton Private Finance are experts!
Read on to learn more about the finer nuances of CS finance.
An Overview of Conditional Sale Finance
A somewhat niche product, conditional sale (CS) finance is a loan agreement that’s tied to the purchased car as collateral.
It’s designed as a simple-to-understand product that shares many similarities to hire purchase (HP) but with some minor adjustments.
The essence to conditional sale is that you make monthly repayments against your car with the end result that once all payments are made you own the car. The key difference between CS and HP lies in the finer legalities of the contract - with hire purchase you are not obliged to purchase the car at the end of the term, with conditional sale, you are.
This subtle difference has very little real-world benefits putting CS above HP - after all, how many buyers are going to pay for their hire purchase agreement to the end of the term and then choose not to own the car? (Very few).
It is for this reason that many lenders ignore conditional sale altogether, simply offering hire purchase in its place.
Related: The 5 Best Types of Car Finance Compared
Moving the Goalposts - Customising CS For You
For those providers that offer conditional sale, however, they do so in a more flexible manner. For simplicity reasons, hire purchase agreements are usually set. That’s not to say they can’t be adjusted, but it’s much easier for a finance provider to offer a hire purchase package to suit the majority of buyers.
The most common and largest of these adjustments come with the deposit. Hire purchase agreements are usually set to a 10% deposit payment. This means that when buying a car valued at £30,000, the buyer will have to pay £3,000 upfront.
It’s also possible to tailor a CS arrangement with a balloon payment at the end for those that prefer this structure - though it must be noted you are obliged to make this payment, unlike PCP finance where it’s optional.
This doesn’t separate conditional sale from hire purchase - in truth, these customisations are available for hire purchase agreements just as much as they are for CS ones. However, the ‘standard fit’ nature of hire purchase that’s so readily available makes tailored options for HP somewhat less promoted.
The Option-to-Buy Fee - Hire Purchase’s Small Additional Cost
One almost-superficial additional cost of a HP agreement is the option-to-buy fee. This is a small cost (usually between £10 and £200) that covers the administration involved in signing the car over to you at the end of a hire purchase agreement.
Because conditional sale has no option for handing the car back at the end of the payment plan, there’s no ‘option not to buy’ and thus no appropriate fee. In short, conditional sale simply doesn’t have this end fee.
Conditional Sale in a Nutshell
Conditional sale agreements are a simple, customisable car finance option that can be seen as a niche alternative to hire purchase.
- Able to be obtained for both used and new cars - As a third-party car finance product, conditional sale is available for the widest range of cars. Extremely low-value cars, however, are unlikely to be offered financing due to their low-value making them poor security on the loan.
- Can be customised with deposits and balloon payments to offset the monthly cost - By structuring the arrangement with either a larger deposit, or end-of-contract final balloon payment (less common), monthly CS payments can be lowered to suit your cash flow and regular budgeting.
- Part exchange accepted as deposit payments - Part exchanging an existing vehicle is a common way to pay an initial deposit for CS. Very low-value cars may be excluded from any part exchange deal.
- Interest added at a competitive rate - Car finance is a competitive market which is good news for buyers, as interest tends to be low. As the vehicle is used as collateral, CS is a form of secured finance, which reduces lender risk and provides better rates.
- Available for bad credit customers - Specialist lenders will be willing to consider customers with a poor credit rating in many cases. The additional security of the car as well as optional larger deposit payments can offset the additional risk of an unappealing credit history to the lender.
- Flexible term length - Conditional sale is available to spread the cost of a car from one to five years (12 to 60 months).
- Fewer restrictions - Unlike other forms of car finance, CS has no mileage restrictions; however other restrictions, such as limiting travel outside of UK and the EU, may be applied. Customers will also be expected to keep the car well maintained and insured throughout the agreement term.
Conditional Sale vs. Other Car Finance
Conditional sale is one of multiple options for car finance - how does it stack up?
- vs. Hire Purchase - The differences between CS and HP are so minor that in most instances it’s simply better to ask for hire purchase. Many dealers won’t have heard of CS (or know the difference) whereas HP is very common form of car finance.
- vs. Personal Contract Purchase - PCP offers a more flexible way to buy your car, with lower monthly repayments and an option to hand the car back at the end of the term to save on the balloon payment. However, mileage restrictions and the size of the final balloon payment may be off-putting.
- vs. Personal Contract Hire - PCH doesn’t offer the option to own the car but offers a worry-free long term lease with maintenance contracts that mean everything’s taken care of. For those looking to own a new car with low monthly costs, PCH may be the better option.
- vs. Unsecured Personal Loan - An unsecured loan will likely have a higher interest rate and won’t be as easy to get if you are suffering from poor credit history, but offers far greater flexibility, with the ability to get additional funds for other uses.
- vs. Credit Card - Good management of a credit card to buy a car can mean financing with 0% interest and great flexibility. However, not properly managing the card or your repayments can lead to debt spirals and far higher interest payments.
Apply with Clifton Private Finance
While we at Clifton Private Finance have a comprehensive understanding of the finer points of conditional sale, our team would usually recommend simply using hire purchase as an alternative.
However, if you find yourself being offered conditional sale finance and feel it suits your need, then it’s a stable financial product that presents an effective way to finance your car without complication.
If you’re looking for car finance, why not speak to one of our expert team? At Clifton Private Finance, our car finance team work tirelessly to find the best deals for our clients. Give us a call today.
