Beware of a loan shark with a car guarantee

We have already talked about the problem of revolving cards, especially about how to claim if we are victims of this scam.

Today, from the hand of our experts in Financial Law, we will talk about a more unknown but equally pernicious type of predatory loan.

We refer to specific purchase and sale contracts with a repurchase agreement that hides a trap: a debt that grows until it becomes practically infinite.

How these types of operations work

What will you be able to read here:

They are advertised to vehicle owners as a quick way to get money while still using the car, but they hide a simulated sale that conceals loan shark credit.

Quick money that you end up paying is costly.

For example:

A judge has recently annulled the contract of a Gijón resident with a company to which she sold her car to obtain liquidity and which she continued to use by paying rent.

The woman received the amount of 6,500 euros for her car and, after having paid more than 10,000 euros in eleven months, received a letter requesting 3,015 euros for the non-payment of three invoices.

All this after having lost ownership of your vehicle.

what it looks like it is

We are faced with two contracts: One entitled “purchase with repurchase agreement” and another “vehicle rental without driver.” The latter is linked to the former.

As the AP of Ourense explains in Judgment 388/2018, of November 29, regarding a case of this type:

The person who owns the vehicle requesting the loan acts as a seller in the first of the contracts, transferring his truck by way of sale to the entity in question in exchange for a price determined according to the type of vehicle.

At the same time, this same individual acts as a lessee in the second of the contracts, which allows him to maintain the use of the vehicle sold, in exchange for a monthly fee that must be paid to the defendant entity (buyer-lessor) for an initial period determined, automatically extendable and indefinitely. 

In the event of non-payment of any installments, the company that grants the loan (the lessor) immediately recovers possession of the vehicle. You also have the right to receive overdue and unpaid installments increased by a percentage, plus a commission for non-payment and a penalty of a monthly rate on each installment.

But that is not all.

A repurchase price is also included, upon payment of which the supposed seller can recover his vehicle, regardless of its state of use when exercising the said option.

What it is

The AP of Ourense points out in the previous sentence that the reality behind these complex operations is:

  1. On the one hand, a person who seeks to obtain financing for his personal needs, for which he would use his vehicle as collateral.
  2. On the other, a financing company that seeks to obtain an interest in exchange for the capital delivered to the plaintiff, ensuring its return through the property right it held over the vehicle.

What is the primary purpose of the contract?

The delivery of money in exchange for obtaining interest.

What is the accessory purpose?

The transmission of the vehicle guarantee compliance with the obligation to return the capital.

The Provincial Court qualifies this situation as a supposed sale in a loan guarantee.

The important thing is that the ultimate purpose of the contract is not the sale of the vehicle but the repayment of the loan, the car acting as collateral. The apparent seller is a debtor and obligated to the loan he contracted.

What can you do if you are stuck in this spiral of infinite debt?

If you have signed a contract of this type and your debt does not stop increasing, you may not see the way out.

Let us tell you something: There is light at the end of the tunnel. 

The reason is that the jurisprudence has indicated that this type of “disguised guaranteed loan” contract is a loan shark and, therefore, null since the cause of the agreement is illegal because it is contrary to the laws.

There are two main reasons for estimating null this type of financial operations:

  1. They violate the prohibition of the commission agreement since in the sale, the property sold is at the same time the guarantee of compliance with the payment obligation, and the fixed price is equivalent to the amount of the debt.
  2. The financial company obtains in operation an interest significantly higher than the average amount of money and manifestly disproportionate according to the circumstances of the case. Therefore, it can be considered a loan shark.

This assumption is found in art. 1 of the loan shark Law, where full nullity is established as a sanction.

Consequences of the nullity of the contract

The fact that the contract is considered null and void has the consequence that the affected person (the borrower) must return only the amount received.

What do you breathe better now?

  • And if you had paid part of the capital and interest due, the company must return what exceeds the borrowed capital.

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