To Loan or Not to Loan (a Vehicle During a Repair): That is the Question

Offering loan vehicles to customers during repairs has become a common practice to enhance convenience and maintain goodwill. In recent months, though, we’ve seen several incidents involving our members that highlight the importance of implementing comprehensive legal and practical strategies to safeguard your business interests when engaging in this practice.

Scenario One: The Like-for-Like Loan Vehicle Expectation

A customer brings in their Land Rover Discovery for repairs. To keep the customer mobile, you put them into a courtesy vehicle, which happens to be a Ford Fiesta. Due to unforeseen parts delays, the repair takes longer than expected. As days turn into weeks, the customer grows increasingly frustrated with driving an economy car while paying for a luxury vehicle.

This situation underscores a common dilemma. While there’s no general legal obligation to provide a like-for-like replacement unless specified in a contract, customers may have expectations that can lead to dissatisfaction and strained relationships.

Managing customer expectations, then, is the key.

Be sure you know if there are any contractual obligations to provide a specific caliber of loan vehicle. In the rough and tumble crush of the real world, things are busy. It’s easy to just engage in practices that are routine without taking the time to see if there are any unique circumstances that might apply. But this situation can get expensive very fast, if there are, in fact, contractual requirements for the level of loan car that you should be providing. Such contractual requirements are reasonably rare, but not unheard of, so it’s worth double checking.
Be proactive and transparent up front. Clearly inform customers at the outset about the type of loan vehicles available. Explain that while you strive to minimize inconvenience, like-for-like replacements may not be possible due to availability or cost constraints. Also, be transparent that, depending on how long the repairs take, the customer might have to switch out their loan vehicle for another, and you cannot guarantee what the new vehicle will be.
Make provision of a loan vehicle part of your service contracts. We’re sometimes surprised to see that some of our members do not include specific contractual language about loan vehicles. Instead, they simply provide a loan vehicle without much in the way of terms and conditions. That’s a very bad idea. Include specific terms regarding loan vehicles. Clarify that the loan vehicle provided may differ in make, model, and features from the customer’s own vehicle. (And, as the next sections point out, include some specific terms about the period of authorization for the use of the loan vehicle as well as insurance obligations.)

Scenario Two: Insurance Complications and Liability

A customer brings in their BMW X5 for substantial repair work. To keep them mobile, you provide a loan vehicle, a Toyota Yaris. The customer assumes that their primary vehicle insurance will extend to cover the loan vehicle, but unfortunately, this isn’t the case. During the loan period, they get into a minor accident, and the Yaris suffers damages. To their surprise, they are responsible for the repair costs, as they neglected to verify insurance coverage for the loan vehicle.

This scenario highlights the importance of having clear terms and conditions for loan vehicles. Here are a few key elements to consider:

Specify insurance obligations in the loan agreement. Outline who is responsible for insuring the loan vehicle. Ideally, the agreement should require the customer to either confirm that their own policy covers the loan vehicle or arrange separate coverage before driving it. Without this stipulation, customers may assume that their regular insurance applies, potentially leaving you at risk.
Define the customer’s liability for damages. Loan vehicle terms and conditions should clearly state that the customer is responsible for any damage to the loan vehicle that isn’t covered by insurance. This includes damages arising from accidents, negligence, or any failure to secure proper insurance. By including a clear liability clause, you protect your business from bearing repair costs that arise from misunderstandings or insufficient insurance.
Include terms about vehicle usage and care. It’s wise to add clauses that outline how the loan vehicle should be used and maintained. For example, specify that the customer must keep the vehicle in good condition and refrain from using it for non-permitted activities (like off-road driving). These terms serve as a reminder that customers are entrusted with a valuable asset, with certain expectations attached.
Require signed acknowledgment of terms and conditions. Have customers review and sign the loan vehicle terms and conditions before taking possession of the vehicle. This step ensures they understand and accept their responsibilities, reducing potential disputes and safeguarding your business interests.

By setting out clear loan vehicle terms and conditions, you establish a robust foundation for handling insurance, liability, and general vehicle care expectations. These measures protect your business, reduce potential conflicts, and ensure customers are well-informed about their responsibilities while using a loan vehicle.

Scenario Three: Prolonged Repair Delays and the Impact on Loan Vehicle Availability

A customer’s Range Rover needs an intricate repair involving specialised parts. Unfortunately, a supply chain delay extends the repair timeline from two weeks to several months. During this extended period, the customer feels entitled to keep the loan vehicle, expecting it as a continued courtesy.

This scenario stresses the importance of setting clear boundaries regarding the duration for which loan vehicles are available.

Set time limits in the loan agreement. Specify a maximum loan period, even in cases where repairs are delayed due to factors outside your control. If longer repair times are expected, inform the customer at the outset that the loan vehicle availability might be limited or subject to periodic renewal based on stock and demand.
Offer alternatives when repair timelines are extended. To avoid frustration, you could provide periodic updates on the repair progress and, if possible, offer a more flexible arrangement, such as a rental vehicle subsidy, for longer repair periods.

Conclusions

In a nutshell, offering loan vehicles can be a great way to keep customers happy while their cars are in for repairs—just don’t let the process veer into the wrong lane. Make sure you have clear terms and conditions, manage expectations about the loan vehicle’s make and model, and remember, unless they can prove a pressing need, customers must take what’s offered. With these strategies in place, you’ll keep the wheels turning smoothly for everyone involved.