Can you scrap a car on finance?

Roman Danaev

17 August 2022

If you need to scrap a car on finance, can you do so? A finance agreement can impact the rest of your finances and your credit rating, so it’s essential to get legal advice before proceeding. These plans can be complicated and dangerous, so it pays to know what you’re getting into.

No, if you know you owe money on a car and want to scrap it, you would need to ensure your outstanding finance is paid off. Remember that financing a vehicle doesn’t mean you own it. You don’t own it until your final payment on the vehicle is cleared. Scrapping a car on finance is scrapping someone else’s car. This could result in a penalty or even lead to prosecution.

Position from a legal standpoint

But some exceptions exist. For example, it is illegal to sell a car until the finance is paid off and the car has gone through a full diagnostic check. Scrapped vehicles will be left with no financial obligations. The lender owns the car, so your finance contract needs to be cleared up before they come to collect it. No one can take away your vehicle unless the finance contract is cleared. Check the contact details on your finance contract, and then call them to clear it up.

If you want to scrap a car on finance, the loan must be paid off beforehand. If a lender repossesses the vehicle, they will be entitled to any sale proceeds.

There are a few different ways people can get a car - one of which is to hire, purchase, or buy one using a credit sale. Leasing might also be an option. There are pluses and minuses to each one, but the most common ones mean you can’t sell your car until the loan has been paid off. If you sign a lease on a vehicle, you don’t own the car, but there may be an option to buy it at the end of your lease.

If you get a loan to finance a vehicle purchase, but it’s not explicitly tied to the vehicle, then the car belongs to you, not the lender. This means that you can sell the car at any point and still be liable to pay back any money that’s owed. Similarly, if your account goes into an agreed overdraft, the car is still yours, and you can either pay off the amount owed or sell it.

You can try selling your scrap car

Legally, a car finance company has to give you a settlement agreement and accept a specified amount to cancel the agreement. If a finance company is not going to take the offer, it would have to send a formal notification that outlines why it will not be accepting the settlement agreement. The finance company must also provide you with a statement of account and any other relevant agreement documents. You are then free to sell the car as scrap or as a roadworthy vehicle.

First, contact the finance company to find out how much you owe. If you have a long-term finance contract, there may be settlement if you want to cancel it early. If your car is worth more than the amount you owe, some dealers will offer to pay this off to the finance company and take responsibility for the sale. Sometimes, when you buy a car, it may not be worth the money you owe to the financing company. In this case, the dealer might pay your financing company for as much as they can but you’ll have to pay whatever is still owed by yourself. A scrap car is typically considered a low-worth commodity, so this type of arrangement won’t be suitable.

If you’re looking to sell your old car, it’s essential to know the process before jumping in. The first thing you’ll need to do is determine how much is owed on the vehicle. If there is still a balance on the loan, you will need to continue making monthly payments until the finance is fully paid off first.

You must ensure you read any financial agreements properly when you have a car on finance. That way, you know what you’re legally obliged to do and hopefully won’t get into trouble.

What are your options?

Request settlement figures

One option is to contact the finance company and ask how much you owe on your contract. Typically, this is around what you would need to pay them to purchase the car outright- meaning even if you don’t want the vehicle anymore, they can transfer ownership over to you. Since the car is now in your possession, you can do whatever you want. Also, in many cases, sellers will offer a trade-in value for their vehicle if you’re interested in buying one of theirs. If they want to keep it as a new car, they will pay the difference between the amount they sell their car for and what you give them for your used car.

Voluntary termination

You might be able to apply for voluntary termination. It depends on the details of your finance agreement. Voluntary termination is a process in which you terminate your finance agreement. If your car is in bad shape and you owe more on it than it’s worth, or if you voluntarily terminate the contract early, you could apply for a deal called an IVA (independent voluntary arrangement) or DMP (debt management plan).

Get your car repaired

If the vehicle is too far gone, you can try fixing it until it’s usable again. This may take longer, but if you’re paying off the loan slowly, it’ll eventually get repaid. In some cases, it might be cheaper to fix your car to a perfect condition than to pay off the loan in full. This is an option worth considering!

Find a buyer to settle your outstanding debt

This is especially the case when you consider what someone might think when hearing that their car is scrapped. Some buyers will help you settle your outstanding finance plan and buy your vehicle from you to get you signed up for a new finance plan with them. One advantage to this is that if your car is not in good condition or isn’t worth a significant amount of money, you probably won’t want or need to explore this option.

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