Selling a car that you own can be a simple and straightforward process, however, if you are looking to sell a vehicle that still has outstanding finance it can be slightly more confusing. It's important that you understand the legalities around selling a car with finance attached to it before attempting to do so.
The law outlines that it is illegal to sell a car with finance before the full amount has been paid off. The reason for this is that if the vehicle still has outstanding finance, it is still the lenders property. This means that you need to pay the finance off before proceeding with selling the vehicle and handing it over to the new owner. Here at Scrapping A Car, we can help you pay your finance off to allow you to sell the vehicle legally.
There are many different finance options available, however, they usually fall into one of the below categories. Finance is usually used if a customer wants to purchase a vehicle but does not have the upfront funds to pay the full amount.
● Contract or lease finance
A contractual or lease finance means that the vehicle is always owned by the lender. These types of finance don't typically offer the opportunity for the vehicle to be purchased and often work on a two or three year rotation period with the option for the vehicle to then be changed or upgraded. The payments made on a contract or lease finance will often pay for the depreciation of the vehicle’s value.
● Credit sale finance
Credit sale finance is an agreement between the lender and the purchaser where both agree that the full amount of the vehicle will be paid in future, this can be either by small regular payments or in one lump sum over a certain period of time. Credit sale finance means that the vehicle belongs to the purchaser from when the arrangement has been made.
● Conditional sale finance
Conditional sale finance means that the vehicle remains the property of the lender until specific conditions have been met. These conditions can vary but mainly include car payments being made on time, there can also be conditions such as the maintenance of the car and insurances. Until the debt of the vehicle has been paid off, the lender still owns the vehicle.
● Personal contract purchase finance
With this finance the lender owns the vehicle until all conditions of the finance have been met, this includes factors such as all payments being made. There is often a bigger upfront payment required and once the contract is up there will be three options; pay the outstanding amount, exchange for a different car or return the car to the supplier.
● Hire purchase finance
With this finance the lender owns the vehicle and it is considered as hired until you have paid the loan in full. This includes the option to purchase fee. Once this has been paid, the purchaser becomes the owner of the vehicle.
It's important to remember that when you are selling a car with outstanding finance, the vehicle doesn't belong to you until the finance is paid. The lender is the legal owner of the car until the finance is settled. It's illegal to knowingly sell a vehicle with outstanding finance attached to it.
It's easy to check whether a car has finance attached to it as the finance company will have registered your car on the HPI and Experian databases when you took out the finance plan. If a vehicle is sold with unpaid finance, the company is able to trace the new owner, repossess the car and the new buyer would be entitled to press legal charges, which in some cases could be for fraud.
There's a few options for paying off your vehicles finance, you can either finish your contract by ensuring all payments are made or you can request a settlement figure. If you ask for a settlement this is the amount of money required to pay your loan in full. This figure can include a break fee, administration fee and a cost recovery fee, however, it doesn't usually include any interest from future payments.
If this process sounds daunting, there is a much simpler, hassle-free way by using Scrapping A Car.
To get started, you can use our online form to get a free, no obligation quote. The only details you need to enter are your registration number and your mobile number, we will then provide you with the best possible quote instantly. Once you have your quote price, you then have the option to proceed with one of the following options:
1. If the price you are quoted covers the amount of outstanding finance left on the vehicle, we can arrange to pay off your settlement fee directly with the finance company. This would then allow for the legal sale of your vehicle; all outstanding payments would be paid in full and you'll be left with any remaining money.
2. If the price you are quoted doesn't cover the amount of outstanding finance, the difference would need to be paid by yourself before we pay off the remaining balance. This would mean your car was sold, finance free and no payments were remaining.
If the vehicle has been damaged or significantly devalued in some way, some providers may agree to lift any encumbrance from the vehicle. If this was to happen, it usually means the lender will transfer the remaining finance to a personal loan. The ownership would then be transferred to you and with the encumbrance lifted, the vehicle would be able to be sold legally.
All finance companies are legally obliged to present you with a settlement agreement should you request one. If you cannot pay off the settlement, then it is not legally possible for you to sell your car. Whether you want to sell your car privately or commercially, if it has outstanding finance you won't be able to.
If you have any questions, feel free to call us on 0203 870 2545 and we will be happy to discuss this further. Our advice is always impartial.