Financing cars is becoming more and more common as people struggle to pull together the large amounts of money required to be able to purchase new, or nearly new, cars outright. That’s all well and good when the car is plodding along trouble-free for a couple of years before your agreement runs out and you either buy a new car or pay off the remainder. But what about when the unimaginable happens and your car becomes undriveable and unrepairable while you still have time left on your finance agreement? Let Scrap Car Comparison talk you through where you stand.
Can I scrap a financed car?
If you’re still paying off the finance on your car, then no, you cannot scrap the car. You are only able to sell a car for scrap that belongs to you, and if you’re still paying off a finance deal then you are not the official owner of the car. If, however, you’ve reached the end of a PCP or HP deal and you are now officially the car’s owner, then you can do whatever you want with the car – including selling it as scrap.
Read More
- Can I Sell a Car With Outstanding Finance?
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How does car finance work?
Car finance is a way to buy a car without having to pay the entire price all in one fell swoop. Instead the cost is spread out over a longer period of time, with you, effectively, taking out a loan with the finance company in order to buy the car. Interest is payable on the loan balance, which means you’ll end up paying more for the car than if you’d have paid for it all in one go.
There are a range of different options open to you when it comes to finance agreements, each of them with their own nuances:
Personal Loan
Probably one of the more popular ways to finance buying a new car, a personal loan sees you borrowing money from a bank or building society in order to pay for the car outright. The best part of a personal loan is that you own the car from the moment the purchase is made, and you have a range of options to choose from by checking with a range of lenders. However, if you’re looking to change cars every couple of years, then this probably isn’t the right choice for you.
What is PCP car finance?
Meaning Personal Contract Purchase, a PCP deal begins with you placing a deposit and then making fixed monthly repayments. While you’re paying off the agreement, the car belongs to the finance company and any payments that you make only cover the depreciation. The major positive about a PCP deal is the flexibility it provides you with at the end of the deal. You have the option to pay off the remaining value of the car (known as a balloon payment) and keep it, you can exchange the car for another new model and start the process over again, or simply return the car back to the supplier. This suits those who are looking to change their cars every three years or so.
What is HP car finance?
HP means Hire Purchase. Similar to a PCP deal, an HP deal requires a deposit and then is paid off in fixed monthly repayments. Again, like a PCP deal, the car belongs to the HP company and you effectively hire the car until you make the final payment, at which point the car is then transferred over to you.
Leasing
If you lease a car, you’ll never own it. Think of it as renting a flat, you pay a monthly fee to rent the car, and when the contract comes to an end, there isn’t any option to buy the car. Instead you get given an option every two or three years to change up the car that you’re driving. It’s a great way to drive cars you usually wouldn’t be able to afford, but you’ll have to accept that you’ll never own the car.
Is it Illegal to scrap a car with outstanding finance UK?
In short – yes. Legally the car will still belong to the finance lender, and if you were to scrap it then this would be breaking the law. You must pay off all outstanding finance on a car before it’s sold in any condition, be it roadworthy or as a scrap or salvage vehicle.
Who is the legal owner of a car on finance?
Legally speaking, the owner of a financed car is the finance lender. Although you are the registered keeper and for all intents and purposes the car is ‘yours’, by the letter of the law it isn’t. As a result, any decisions to sell or scrap can only be made once any outstanding finance is paid off.
What happens if my car breaks while on finance
If your car suffers any damages while you still have outstanding finance on your car, then it’s up to you to get it fixed. You may need to be careful about where you take the car to be fixed, however. Some PCP or HP contracts will specify exactly which garage must be used for any work. More often than not this work will need to be carried out by the manufacturer, particularly in the case of new cars.
If the car has been written off, then the payout from your insurance company will first be used to pay off any remaining finance on your deal. If the insurers have paid out and there is no outstanding finance, then the vehicle becomes property of the insurer. In some cases, you may need to pay a shortfall, or you may even get some change from the payout.
Can I scrap a car bought with a bank loan?
Unlike a finance agreement, using a bank loan to pay for a new car means that the car is yours from the moment the payment is made, so it is entirely up to you what you do with the car. However, just because the car may have been scrapped and is no longer owned by you, if you have yet to finish paying off your loan, you will need to keep up with the repayments. Remember, while they would have asked you why you needed the loan, the lender won’t care if your car runs for 20 years or 20 days before needing to be scrapped – they just want their money repaid on time.
How do I get rid of a car with outstanding finance?
Unfortunately there’s not a lot you can do in this situation, except continue to make the payments until the agreement is fully paid off. Of course you could look into getting a loan to pay off the first figure, but you’ll still be paying off that figure you were hoping to get rid of in the first place. If you’re unsure if your car still has outstanding payments remaining then you can check your car’s outstanding finance by carrying out an HPI check on it – this also applies when buying a used car and you want to ensure there’s no finance remaining on it. Alternatively, just check your bank account to see if the money is continuing to come out, or contact the company who you took out the loan with.
If you’re looking to scrap your car and you are legally in a position to be able to do so, then there’s no better place to go than Scrap Car Comparison. With our industry leading knowledge and nationwide network of specialist scrap and salvage buyers, we can guarantee you the very best price in the easiest way possible. As if that wasn’t enough, we’ll even come and collect the car directly from you at no extra cost. So get started today and find out just how much you could receive for your old car.
