Keenan and Riches’BUSINESS LAW

that he pays off what he owes, and if he defaults on his
repayments, the seller cannot repossess the goods. This
is in marked contrast to the position under an HP agree-
ment. A specimen credit sale agreement is reproduced
in Fig 13.3. This form of credit is used, for example, in
purchases from mail order catalogues.

Bank loans

There are various ways of borrowing from a bank.

1 Overdraft.An overdraft may arise in one of two ways:
either the customer makes an arrangement with the bank
to overdraw his current account up to an agreed amount
or, without prior agreement, he simply writes cheques
for an amount greater than in his account. A variable
rate of interest is charged on the amount drawn by the
customer, calculated on a daily basis, and bank charges
usually become payable. Security may be needed for
large sums. The bank can insist on repayment in full at
any time. An overdraft is usually the cheapest way of
borrowing from a bank.

2 Ordinary loan.This type of loan is extended to bank
customers and for a particular purpose – to buy a car,
for example. A specific sum of money is borrowed for an

agreed period of time. A separate loan account is opened

by the bank into which the instalments are paid, usually

by means of a standing order from the customer’s cur-

rent account. Variable interest is charged and security

may be required.

3 Personal loan.The loan is available to anyone, cus-

tomer and non-customer alike, usually for a particular

purpose. The period of the loan and interest are fixed

when the credit is arranged. Again, security may be asked

for. It is usually a more expensive way of borrowing than

either the overdraft or ordinary loan.

4 Budget account.A budget account is used to help

spread the payment of bills over the year. The customer

calculates his annual outgoings on such items as gas,

electricity, water and council tax. The bank adds to this

its service charge for operating the account. The total is

divided by 12 and a standing order for this amount is

placed to the credit of the budget account. The bills can

then be paid with confidence as and when they arrive.

Credit cards

A credit card allows the holder to pay (usually up to a

limit) for goods and services or to obtain a cash advance

Part 3Business transactions

384

Hire

instalments

FINANCE COMPANY

SUPPLIER CUSTOMER

Possession of goods on hi

re

1 2

Ownership of the goodsPurchase priceAgency 3

Figure 13.2A typical hire-purchase arrangement

Notes
(1) Contract for the sale of goods between the supplier
and the finance company covered by the Sale of Goods
Act 1979.
(2) HP contract between the finance company and
the customer. The agreement will be regulated by the
Consumer Credit Act 1974, if the debtor is an individual,
a sole trader or a partner in a partnership of two or three

partners. If the Act does not cover the agreement, the

common law applies.

(3) If the HP agreement is a regulated agreement under

the Consumer Credit Act 1974, the dealer is regarded as

an agent of the finance company. The finance company

is equally responsible with the supplier for any

misrepresentation or breach of contract.