If your financed car is no longer roadworthy, then you may be wondering if you can scrap or sell your car with outstanding finance. If you have completed your outstanding finance check, then you can start to explore your options.
In this guide, we’ll discuss the steps you need to take before scrapping a financed vehicle - and why it may be in your best interest to sell the car on finance instead.
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Is it possible to scrap a car with outstanding finance?
No, in most circumstances, you cannot scrap a car with outstanding finance. This is because the lender is still the legal owner of the vehicle until the loan has been paid off – even though the car’s V5C logbook is in your name.
Whether you’ve financed the vehicle through a Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement, the law is the same.
Whilst you can get a scrap quote for the vehicle, the finance agreement must be settled before you can proceed with scrapping it. Put simply, until the outstanding finance is settled, the car is not yours to scrap or sell.
If you used a bank loan rather than a finance agreement, then you can still scrap or sell the vehicle before you’ve paid off the debt. However, you will still be responsible for paying the balance of the loan, despite the car no longer being in your possession.
What are my options?
If you want to scrap your financed motor, you’ll need to settle the finance agreement - or find someone else who can. Whether you’re planning to transfer ownership, or sell the car to an alternative buyer, you cannot part with the vehicle if it doesn’t legally belong to you.
Whilst it is illegal to privately sell a car that is still subject to a finance agreement, it is possible to sell to many dealers and car buying services, such as webuyanycar. We can settle the balance on your behalf with the lender, allowing you to sell your car.
Alternatively, if your financed car is worth more than the amount you owe on it (also known as ‘positive equity’), a car dealer may offer to pay the outstanding amount directly to the lender, allowing you to legally sell the car – and transfer ownership to the dealer.
If you don’t want to use a car buying service, or can’t get an offer from a dealership, then your only other options are:
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Continue making your regular payments to pay off the loan.
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Voluntary termination: If you’ve paid off at least half of the total loan amount, you can return the car to the lender under the Consumer Credit Act 1974. However, just bear in mind that you won’t get any money back (and you’ll no longer have a car).
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Voluntary surrender: If you are struggling to make payments due to financial difficulties, you can enter a ‘voluntary surrender’ agreement. The lender will take the car from you and sell it at auction. If the car sells for more than the outstanding balance, you won’t have to make any further payments. Just be aware that if you make a voluntary surrender, this will be noted on your credit report.
What happens if you scrap a financed car without settling the finance?
We’ve covered how finance agreements mean that the car does not legally belong to you, but what happens if you still try to scrap it?
Attempting to scrap a car that you do not own could see you facing legal charges such as fraud. Even if you’re planning to use the money from the scrap dealer to pay off the outstanding balance, you could still face criminal prosecution.
It’s crucial that you follow the proper steps and maintain clear and open communication with your lender to avoid any criminal charges. Finance companies are legally obliged to provide you with a settlement amount on request to allow you to cancel the agreement.
Until this debt is settled, the car is not yours to scrap – even if it is no longer roadworthy.