# Car Finance



## tom-coupe (Jan 17, 2009)

as you are probably all aware by now but i am looking at changing my car due to my circumstances have changed i got a car 14 months ago on finance over 3 years. i put a deposit down on it and nearly half way through my plan. but when i went to a main dealer yesterday to view a car. he told me because im in negative equity with my current car and almost half way through my contract i can opt for voluntary termination where i can just hand the car back to them. my car is with a reputable company and he told me that i should have no problem doing so but he also said that this will not effect my credit rating and having looked on a credit rating website to see how good mine is it is excellent just a couple of points of top mark. (990 out of 1000 apparantly) so i wouldn't want to effect that so can anyone confirm that this is true? that it wont effect me. 


thanks 



tom


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## SarahAnn (Apr 6, 2011)

Why would you want to hand a car back and get nothing if you have paid for most of it?

Are your change in circumstances so bad?


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## The Cueball (Feb 8, 2007)

I would suggest you dig out the contract and find the bit about early termination...

that is the only 100% accurate thing to help you...not sales people or people guessing on the internet...

:thumb:


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## tom_painter85 (Jul 5, 2007)

What Cueball said.

The salesman is correct, there will be a clause in your agreement called VT or 'Voluntary Termination' that states you can hand a vehicle back once you've paid £xxxx.xx

This WILL NOT affect your credit rating and you will be able to hand the car back, and start up a new agreement - with the same finance company if necessary.

They don't like doing it, but that's why VT is in the (very) small print.

Good luck mate


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## Stumper (Apr 5, 2009)

tom_painter85 said:


> What Cueball said.
> 
> The salesman is correct, there will be a clause in your agreement called VT or 'Voluntary Termination' that states you can hand a vehicle back once you've paid £xxxx.xx
> 
> ...


This!!

I'm in the process of doing a voluntary termination at the moment on my car and so far it's all pretty straight-forward!


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## LindenH (Oct 25, 2011)

As above, there will be a clause in your agreement "Termination - your rights" which will give you the exact figure that you need to have paid in order to terminate the agreement and hand back the car. This figure is half of the total amount payable that you would pay if you reached the end of the agreement. The total amount payable includes your original cash deposit, any part-exchange value of your previous car, all interest, all up-front fees, etc.

This used to be referred to as 'halves & thirds' - the halves being the termination figure, the thirds being your rights with regard to repossession by the finance company. (now a separate clause in your agreement).

If handing back your car under the 'halves' clause, you may have a shortfall and need to pay the difference. You may also be subject to mileage charges if you have exceeded any mileage agreement and you may also (quite common these days) be liable for any charges for vehicle damage that isn't classed as fair wear & tear.

You also must remember that you will be starting any new agreement from zero - so will need to find a deposit for your new car.

Whilst it isn't considered to be detrimental to your credit rating, any future credit searches will show that your agreement was terminated (noted as VT) so credit/finance companies will be able to see that information ..... they aren't technically allowed to take that into consideration when making decisions regarding your credit-worthiness, but they have the information all the same.


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## tom-coupe (Jan 17, 2009)

thanks guys can i ask you who its with graeme its ok if you dont want to say.


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## ChuckH (Nov 23, 2006)

I can understand Someone taking the VT option if finances dictate that they cannot make the payments....... But to do it just for another car makes no sense to Me.....

The salesman will of course offer any options that enable another sale.................


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## SarahAnn (Apr 6, 2011)

ChuckH said:


> I can understand Someone taking the VT option if finances dictate that they cannot make the payments....... But to do it just for another car makes no sense to Me.....
> 
> ...........


Same here Chuck. Guess we are just old :wall:


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## andy665 (Nov 1, 2005)

ChuckH said:


> I can understand Someone taking the VT option if finances dictate that they cannot make the payments....... But to do it just for another car makes no sense to Me.....
> 
> The salesman will of course offer any options that enable another sale.................


It makes sense if the car is not worth as much as is owed. If you owe £10k on a car and the most you can hope to realise in a sale is £8k then exercising your right to VT would save you £2k.

What most lenders will try and do is to negotiate a lower settlement tahn that currently on the car - the LAST thing a finance house wants is a car returned, their internal processes are just not set up to hanlde them.

If you do exercise your right you need to confirm mileage on the day that your exercise your right and rquest that they collect the car within a "reasonable" time frame - you are able to charge storage if they do not comply.

The salesman was incorrect in stating that its when you're halfway through - that is totally irrelevant.

You can exercise the right to VT when you have repaid half of the total amount owed that is clearly stated on any finance document.

It is a legal right that will not affect your credit rating. The finance house may put a marker on your account that could influence their decision to lend you money ionthe future but they cannot share that with any other lender


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## Nanoman (Jan 17, 2009)

andy665 said:


> It makes sense if the car is not worth as much as is owed. If you owe £10k on a car and the most you can hope to realise in a sale is £8 then exercising your right to VT would save you £2k.
> 
> What most lenders will try and do is to negotiate a lower settlement tahn that currently on the car - the LAST thing a finance house wants is a car returned, their internal processes are just not set up to hanlde them.
> 
> ...


Some good advise from people on here including God 
(that should be Andy665's username). The only thing I would as is it only applies to HP and not a personal loan.


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## andy665 (Nov 1, 2005)

Nanoman said:


> Some good advise from people on here including God
> (that should be Andy665's username). The only thing I would as is it only applies to HP and not a personal loan.


I hope not , but 20+ years in the motor industry and in and around car finance gives me a bit of an insight into things

We're not all legalised muggers in the motor industry


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## ChuckH (Nov 23, 2006)

andy665 said:


> It makes sense if the car is not worth as much as is owed. If you owe £10k on a car and the most you can hope to realise in a sale is £8 then exercising your right to VT would save you £2k.
> 
> What most lenders will try and do is to negotiate a lower settlement tahn that currently on the car - the LAST thing a finance house wants is a car returned, their internal processes are just not set up to hanlde them.
> 
> ...


I would bet that there is a clause that says that the car must be worth the VT figure ????
Also cars handed back have to have the service books up to date and be in a suitable condition ... You cant hand back a car that has depreciated way beyond the average or a car that has been abused....

As Cuey say above. The OP needs to study His agreement carefully and not listen to hearsay........:thumb:

I think one solid piece of advice would be to consider whether One wants to be tied into a credit agreement for three Years or more before sighing ?? After all its a long time to keep a car ??

Handing back under the VT scheme is only going to cost one person money that's for sure !!
Perhaps people should consider SAVING up for a car instead of chasing tail ???


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## andy665 (Nov 1, 2005)

ChuckH said:


> I would bet that there is a clause that says that the car must be worth the VT figure ????
> Also cars handed back have to have the service books up to date and be in a suitable condition ... You cant hand back a car that has depreciated way beyond the average or a car that has been abused....


1. Have never seen that clause in any agreement - can't be 100% sure but think it would be illegal to have such a clause

2. Absolutely correct - most finance houses use the BVRLA condition guide to assess condition of a returned vehicle and they are perfectly at liberty to chargre for anything that is not considered "reasonable condition for age and mileage"

Car does not need to have FSH but a penalty could be applied if it does not

One thing they cannot charge for is any mileage deemed to be in excess of what could be deemed to be reasonable for the age of vehicle (unless agreement stipulated a maximum mileage)


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## SarahAnn (Apr 6, 2011)

Isn't everyone with finance in this position with interest charges etc? Isn't it something that they have to take a hit on sort of thing if they have to finance?
I was surprised the guy was thinking of handing it back for free after paying a deposit and payments aswell when he first posted but then thinking about it, i would think that most people with finance would be in a similar pickle. Car being worth less than they owe after a couple of years?

Won't he be in the same pickle another year down the line if he has to finance again for the BMW that he's talking about in the other thread? :wall:


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## ChuckH (Nov 23, 2006)

I will make one final comment on this thread...
A finance company will not loose money when a car is handed back under the VT scheme ..
They are far to astute for that.. There will be clauses in the fine print that would exonerate them from being caught out like that .......


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## andy665 (Nov 1, 2005)

ChuckH said:


> I will make one final comment on this thread...
> A finance company will not loose money when a car is handed back under the VT scheme ..
> They are far to astute for that.. There will be clauses in the fine print that would exonerate them from being caught out like that .......


Thats why one manufacturer finance house is sitting on a £80+ million pound shortfall if all current agreeements were VT'd.

Its fair to say that motor manufacturer finance houses are terrified of the current situation and will do anything to deter a VT.

Case in point - was in a prestige dealership that I do some work with last week. Customer came in, currently owes £36,000 on his car, dealer values the car at £27,000, therefore £9,000 negative equity - customer VT'd car based on recommendation from dealership, put customer in a position where he could buy again, dealer secured a sale, finance house took it on the chin - they had no option but to do so

The finance house can't pick and choose the rules under terms of VT - its a legal requirement

Current economic climate is placing finance houses at major risk - values are plummeting and often compounded by the terms of the agreement that they set to attract customers in the first place


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## Nanoman (Jan 17, 2009)

ChuckH I'm afraid you need to do your research.

The conditions are written in law to prevent consumers being screwed over by taking out finance secured on something that turns out to drop in value. It's the same group of laws that protect you when you buy something on a credit card that turns out to be faulty.

If you have a £10k loan secured on a car that's worth £5k and have paid half the total value of the sale then you can hand it back. The only person that loses money here is the finance company.

It applies to any item bought on Hire Purchase not just cars.

From The Telegraph website (i'm not sure how much weight you give to this):


> After half the sale price has been repaid, the buyer can either continue the payment plan or return the car and walk away. Under HP, you are essentially hiring the vehicle, so if you do walk away at this point you will be liable for any damage. Even small scratches can be chargeable at £50 each.


My local council consumer website:


> If I can't sell the car what can I do?
> 
> You have the right to terminate the agreement at any time. If you terminate, then you are required to pay half the amount on the agreement and give the car back to the finance company.
> 
> ...


direct.gov.uk


> If you no longer want the item
> 
> If you have a HP loan and no longer want the item, you can end the agreement early by returning the item and paying half of the loan. You can't do this if you have a CS loan.


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## SarahAnn (Apr 6, 2011)

Nanoman said:


> ChuckH I'm afraid you need to do your research.
> 
> The conditions are written in law to prevent consumers being screwed over by taking out finance secured on something that turns out to drop in value. It's the same group of laws that protect you when you buy something on a credit card that turns out to be faulty.
> 
> If you have a £10k loan secured on a car that's worth £5k and have paid half the total value of the sale then you can hand it back. The only person that loses money here is the finance company.


I don't understand that. Cars go down as soon as you take them from the forecourt and if they have interest payments on top, how can it be the finance company's fault? Sorry i don't understand


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## Nanoman (Jan 17, 2009)

SarahAnn said:


> I don't understand that. Cars go down as soon as you take them from the forecourt and if they have interest payments on top, how can it be the finance company's fault? Sorry i don't understand


I don't think I made it clear when I said "turns out to drop in value". Basically it's to protect against a consumer buying something on HP that turns out to be worth much less. The half payments rule is protects the finance company against front loaded depreciation that you usually get as soon as something goes from 'new' to 'used'.

Where there's a high risk of the car being worth subtantially less than outstanding payments you generally will struggle to get HP and the dealer will usually arrange a personal loan on your behalf.

The VT thing is one of these things that can seem too good to be true so people think there must be a catch. It really is quite simple with HP. Once you've paid half you can hand it back and walk away. PCP is also included in this but the balloon payment thing means it's closer to the end of the agreement that this can happen.

Obviously if it's been rolled into a ditch the finance company is protected and they can charge for anything that isn't fair wear and tear.


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## SarahAnn (Apr 6, 2011)

Nanoman Thanks for the explanation of what you meant.

It all sounds a bit complicated to me. I've always thought that if you take finance, you take the added interest hit and pay extra for having/using something that you couldn't afford. That's why if i can't afford to pay for something, i wait until i can afford it. No offence to the op as we have gone a bit off thread.

I thought the whole point of finance houses was to make money on people from finance. How can they work if they don't? Like Andy said, if everyone on finance was to do the same thing, the finance houses would be in a pickle.

I'm just trying to understand why someone would want to hand something back and end up with nothing when they knew how much things cost in the first place and were aware of car depreciation. Surely if you take something on finance, you know that you are paying well over the odds from the start and that's where the finance houses make their living?


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## andy665 (Nov 1, 2005)

The law in this case is actually skewed in favour of the consumer.

However the finance houses have made the situation worse by happily doing deals with minimal deposits over long terms, the run rate of these agreements is that the customer is virtually always in negative equity, certainly past the point at which their VT rights could be exercised.

The number of agreements I have seen with 1 or 2% deposit is amazing, the finance houses, like the banks have historically been falling over themselves to lend money, now they are left very exposed.

SarahAnn - some very savvy people make the VT work for them extremely well - it can significantly reduce the cost of running (not owning) a car.

A good friend of mine a number of years ago bought a Jeep Grand Cherokee - straight HP with minimal deposit. He was going to be doing 40k + miles per annum. He got to the point where he had paid back half of the total amount owed, his settlement figure was £17k, his best price offered in PX against a Cayenne was £14k, meaning, in effect he was in £3k negative equity.

He contacted the finance house, the last thing they wanted was a two year old 60k mile Jeep Grand Cherokee to dispose of, they offered him a reduced settlement figure of £12k which he happily accepted. PX'd with Porsche for £14k, so ended up with £2k equity as opposed to £3k negative equity.

In effect by exercising his VT rights he reduced the cost of running his Jeep by £5k

Having said all of that - by no means everyone is better off by VT'ing their car - it would be silly to returrn a vehicle to the finance house if the car was worth more than the amount owed.

Voluntary Termination has been a feature of agreeements for many years, something that finance houses have, quite understandably not publicised


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## ChuckH (Nov 23, 2006)

andy665 said:


> The law in this case is actually skewed in favour of the consumer.
> 
> However the finance houses have made the situation worse by happily doing deals with minimal deposits over long terms, the run rate of these agreements is that the customer is virtually always in negative equity, certainly past the point at which their VT rights could be exercised.
> 
> ...


I understand what You are saying and truthfully this is a situation that I did not know existed .......But then as someone who saves and pays for their cars I wouldn't know
But surely what will happen is that Finance company's will just ask for say 33% deposit just like they did years ago ?? So that negative equity will not be such a trap for them ?

I reality the finance if the finance company's are exposed to the above then somebody has to pay ?? Either that or they will simply go out of business...

To Me its a little like there Payment protection insurances.. People knowingly took them out and were happy with them.. Most went full term and were still happy..
The some clever person found a loophole and a judgement was made. So now everyone is jumping on the bandwagon and claiming back the premiums ........

The bearer of that fiasco ?? Each and every one of Us that has a bank account.....


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## tom-coupe (Jan 17, 2009)

i agree with what your saying chuckH but i thikn the fact of it all is hardly anyone seems to know about this clause so if noone knows about it then there still making millions on the intrest there charging


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## ChuckH (Nov 23, 2006)

tom-coupe said:


> i agree with what your saying chuckH but i thikn the fact of it all is hardly anyone seems to know about this clause so if noone knows about it then there still making millions on the intrest there charging


If You Tom were not wanting to contribute to the millions the Finance company's are making don't take finance. Simple.....


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## andy665 (Nov 1, 2005)

tom-coupe said:


> i agree with what your saying chuckH but i thikn the fact of it all is hardly anyone seems to know about this clause so if noone knows about it then there still making millions on the intrest there charging


That is the one thing that has let the finance companies off the hook, difficult for someone to exercise their right to VT if they do not know about it - whilst it is always in the small print how many people actually read it

ChuckH - many finace houses are indeed starting to tighten up on their underwriting criteria, one area that is certainly changing is the amount they are prepared to finance.

It was only a couple of years ago that finance companies (and we're talking manufacturer finance houses not back street outfits) were happy to fund 100% of the price of the car + the negative equity of their previous car


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## tom-coupe (Jan 17, 2009)

dont be getting your knickers in a twist chuck am not saying its the correct thing to do or morally correct just my circumstances have since changed and im looking to upgrade. if company's are willing to offer this clause then people have the right to exercise this clause.


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## SarahAnn (Apr 6, 2011)

Tom - i dont think that ChuckH is getting his knickers in a twist :thumb:

I think it's the fact that i, for one, had never heard about people using this to their advantage.

I always thought it was a bad thing and embarrassing to have to hand a car back for free. I thought people only did that if they couldnt afford the repayments. After reading what Andy has put, i see that some people know the system and work it to their advantage.

It does make me wonder if i should have kept my £20k in my account in October and driven out in a brand new Range Rover Sport on the 'never never' rather than paying for what i could afford :thumb:
Perhaps not


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## andy665 (Nov 1, 2005)

tom-coupe said:


> if company's are willing to offer this clause then people have the right to exercise this clause.


Thats the point, companies do not have a choice - its a legal requirement to provide a VT option - if finance houses had their way it would not exist.

Like ChuckH I do not use finance so it would not bother me if it was not there.

I personally have always struggled with who it benefits but you cannot blame peoiple for merely exercising their legal right.

To be fair to the consumer the finance houses with the stupid terms that they have been prepared to offer turned a ***** in their armour into a sodding great cravasse that they hoped would not be discovered.

Fact of the matter is that manufacturer finance houses are big businesses, Volkswagen Financial Services (encompassing all of their brands) will lend in excess of £1.5 billion in the UK this year!!!


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## ryand (Jul 18, 2008)

Two thoughts.

1. Sell the car privately if you can and then pay off the finance, unless there is negative equity.
2. VT the car if you can. Two colleagues do this all the time with every car. They put down no or a VERY small deposit on quite pricey cars, stretch the agreement out a long time, ie 4 years, have no mileage limits on the agreement and then VT the car every time, eg after 2 years as they are sales reps and do c.40k miles per year. The car is always in negative equity due to the miles, but always have main dealer services on time to keep everything up to scratch. Not sure I would want to do this all the time and surely the finance people would wise up to it, especially as one colleague always does it from the same dealer!


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## justina3 (Jan 11, 2008)

so whilst its leagal is it moral ?


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## Nanoman (Jan 17, 2009)

justina3 said:


> so whilst its leagal is it moral ?


Absolutely it is without doubt. Any chance to legally get one over the banks should be embraced.


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## t1mmy (Dec 9, 2006)

SarahAnn said:


> It does make me wonder if i should have kept my £20k in my account in October and driven out in a brand new Range Rover Sport on the 'never never' rather than paying for what i could afford :thumb:
> Perhaps not


Financing a vehicle is something I would always recommend looking into. By paying out that £20k you had saved affects you in two ways:

1. You now have less personal financial security to the tune of £20k.

2. There's a fair amount of interest that you won't be getting on the £20k that you could have left in your bank.

Yes you will be paying interest on the finance but it might not be much greater than the interest you could have made by financing the car instead.

Each to their own though. It all depends on the deal at the time and what your personal preference is.


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## Stumper (Apr 5, 2009)

justina3 said:


> so whilst its leagal is it moral ?


As far as I'm concerned, the banks and finance companies aren't concerned about the morality of their actions and the way they treat customers so why should we be concerned about the morality of the way we treat them?

Do unto others as they would do unto you... some companies would do well to remember that!


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## ALM (Oct 16, 2011)

Yes, this can be done. It's a standard part of any lease type agreement. It is completely legal.....morals don't come into it.....it's an option for you should you deem it suits your circumstances.


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## SarahAnn (Apr 6, 2011)

t1mmy said:


> Financing a vehicle is something I would always recommend looking into. By paying out that £20k you had saved affects you in two ways:
> 
> 1. You now have less personal financial security to the tune of £20k.
> 
> ...


That was a small part of my savings. I never spend to leave myself short :thumb: I could have had a RR Sport had i wanted to spend more savings so i am sensible :thumb:
I wasnt getting interest and the interest to be paid on finance was more than i was getting in the bank. The bank interest rates are shocking. Ive even put some money into premium bonds as the interest rates are so bad.

PS i had car finance about 20 years ago and it was like a weight around my neck. I hated it. After that, i don't like being in debt and car finance to me is a debt i would hate to have. I would rather own cars that are well within my means rather than something twice as expensive on the never never. I'm happier with that.


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## t1mmy (Dec 9, 2006)

SarahAnn - We all have choice in life, that's what makes it good. What works for one person doesn't always work for another. I have no issues financing a car but I understand why others do. I use to be in the camp who would only buy something that they could afford at the time but having sold cars for a few years I'm open to making the deal work to my advantage.


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## SarahAnn (Apr 6, 2011)

Yep i agree T1mmy, we all have choices :thumb:

I might have done the same when the bank interest rates were better and my money might have made something if it had stayed where it was :thumb:

It was just getting my head around giving a car back for free that i couldnt understand but if that's what the person knows they are doing when they take it out and it's to their advantage, i understand now why they do it. 
I just needed Andy to explain more about it and he did that in simple lingo :thumb:
It seems more common than i thought.


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## andy665 (Nov 1, 2005)

SarahAnn - its something that dealerships are now actively advising customers about - it costs them nothing.

If the dealership sold them the car originally their commission will be safe as it can only use be clawed back by the finance house within the first 12 months of the agreement/

If I was back running a dealership and I had a customer sitting in front of me who was in negative equity with their current vehicle and that was preventing me from selling them a new car I would certainly advise them of the VT clause within their agreement. 

Whilst finance houses do not like dealerships bringing it to peoples attention there is in reality nothing they can do about it as what they are drawing peoples attention to is a legal right that they might not be aware of


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## justina3 (Jan 11, 2008)

ALM said:


> Yes, this can be done. It's a standard part of any lease type agreement. It is completely legal.....morals don't come into it.....it's an option for you should you deem it suits your circumstances.


yours may not but mine do,


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## Lee.GTi180 (Apr 28, 2010)

justina3 said:


> yours may not but mine do,


Same here, buy what you can afford, if you can't afford it then you can't have it. Not sure why Britain has such a problem with that.


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## Nanoman (Jan 17, 2009)

Lee.GTi180 said:


> Same here, buy what you can afford, if you can't afford it then you can't have it. Not sure why Britain has such a problem with that.


Buying on credit makes the world go round. When it's done properly it can work for everyone involved. If you can afford to meet the terms of the credit agreement/contact I don't have a problem with it at all.


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