Tied (purpose-specific) loan
A tied loan is a consumer credit contract whose financing is legally bound to the purchase of a specific good or service. If the underlying sale is voided or the item not delivered, the credit agreement is automatically dissolved by operation of law. A consumer credit broker uses it to fund the purchase of a vehicle, equipment, or precisely scoped works, highlighting the legal protection it affords the borrower.
Key points
- The legal link between the sale contract and the credit agreement is the borrower's key protection.
- Funds are typically released upon actual delivery of the goods or completion of the service.
- The borrower has a 14-day right of withdrawal from the credit contract.
- Any failure to deliver or major defect entitles the borrower to suspend repayments.
- Unlike unallocated personal loans, they require a precise description of the financed good or service.
Frequently asked questions
What distinguishes a tied loan from an unallocated personal loan?
With an unallocated personal loan, the borrower receives freely available funds and uses them as they see fit without having to justify the purpose. With a tied loan, funds are paid directly to the seller and strictly tied to the defined purchase. In exchange, if the sale falls through, the credit automatically falls with it — that is the key legal distinction that benefits the borrower.
How does the automatic dissolution of a tied loan work when the underlying sale is canceled?
Under Article L312-55 of the French Consumer Code, the voiding or cancellation of the sale contract automatically dissolves the tied credit agreement by operation of law. The borrower is released from all future repayment obligations, and any amounts already paid under the credit must be refunded by the lender. No additional court proceedings are required to trigger this dissolution.
For what types of purchases would a broker recommend a tied loan?
A tied loan is best suited to large, clearly identifiable purchases: a new or used vehicle, premium appliances, furniture, or renovation work carried out by a contractor with a detailed quote. It is less suitable for multiple or imprecise expenses, for which an unallocated personal loan is more appropriate.
In practice
A borrower orders a new car from a dealership and takes out a €22,000 tied loan to fund it. Before delivery, the order is canceled due to a manufacturing defect. Thanks to the legal link in the tied loan, the credit agreement is automatically dissolved and any arrangement fees already paid are refunded, with no court proceedings required.
Official sources
- Consumer credit: tied credit · Service-Public.gouv.fr
- Obtaining a mortgage loan · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr