Selling a car that’s still under finance can be a bit tricky, but it’s entirely possible with the right steps. Whether you’re trying to upgrade to a new vehicle or simply looking to relieve some financial burden, it’s important to understand how to legally and efficiently sell a car that is still financed. This guide will walk you through the key steps to ensure a smooth transaction and help you avoid any potential complications.
Understanding Your Finance Agreement
Before you can sell a car that’s on finance, you need to know exactly what type of finance agreement you have. Most car finance deals fall into one of two categories:
1. Hire Purchase (HP) or Personal Contract Purchase (PCP)
In both HP and PCP agreements, you don’t technically own the car until the finance has been fully paid off. If you have a PCP agreement, you’ll have three options at the end of the term: pay the balloon payment to own the car, return the car, or trade it in for a new one. On the other hand, with HP, once you’ve made all payments, the car is yours.
If you’re trying to sell the car before completing the agreement, you’ll need to settle the remaining balance.
2. Personal Loan
If you financed your car with a personal loan, you already own the vehicle, as the loan is unsecured. This makes selling a bit easier since you can sell the car without needing to get approval from the lender, although you’ll still need to continue making your loan repayments.
Requesting a Settlement Figure
Once you’ve confirmed your finance type, your next step should be to contact your finance company and ask for a settlement figure. This is the total amount of money you still owe on the finance agreement. The settlement figure may include the remaining balance of your loan, interest, and any fees.
It’s crucial to obtain this information because you cannot legally sell the car until the finance is paid off. Most lenders will give you this figure, which typically remains valid for 10 to 30 days.
Selling the Car to Pay Off Finance
If you’ve decided to sell your car, there are several routes to take, depending on how much you owe and how much your car is worth.
1. Selling Privately
Selling a car privately while it’s still on finance can be done, but there’s a key point to remember: the buyer will not have clear title to the vehicle until the finance is fully settled. You will need to use the sale proceeds to pay off the remaining finance.
- Steps to take:
- Get a valuation for your car to determine its market value.
- Negotiate the sale price with the buyer.
- Arrange to settle the finance with the proceeds. Be upfront with the buyer about the finance and ensure that they understand the situation.
Once the finance is paid off, the title will be transferred to the new owner. Some buyers might be hesitant about purchasing a financed car, but transparency can help build trust.
2. Trading In at a Dealership
Dealerships are often willing to take care of settling your finance as part of a trade-in deal. This is typically a more straightforward option.
- How it works:
- The dealership will value your car.
- They will pay off the remaining finance directly to the finance company.
- Any remaining value after settling the finance (positive equity) can be applied toward the down payment on your next vehicle.
However, if your car is worth less than the outstanding finance (negative equity), you may need to either roll the remaining debt into a new finance agreement or pay the difference yourself.
3. Selling to a Car Buying Service
Several car buying services, like WeBuyAnyCar or CarMax, offer a fast and simple process for selling your car. These companies often handle the settlement process, making it an easy option.
- Process:
- The company will inspect and value your car.
- They will offer a purchase price.
- If you accept, they will pay off your finance directly and send any surplus funds to you.
This is a quick and efficient way to sell a financed car, though you might not get as high a price as selling privately.
What Happens If You Have Negative Equity?
Negative equity occurs when your car’s market value is less than what you owe on your finance agreement. In this case, you’ll still be responsible for paying off the remaining debt, even after selling the car.
Options for Handling Negative Equity
- Pay the shortfall: If you have savings, you can cover the difference and settle the finance.
- Roll over the debt: Some dealerships allow you to transfer the negative equity into a new finance agreement, though this means you’ll start the new deal with more debt.
While negative equity isn’t ideal, being proactive about your options can help minimize the financial strain.
FAQs
1. Can you sell a car that’s on finance?
Yes, you can sell a car that’s still under finance, but the outstanding loan must be settled before the new buyer can take ownership.
2. How can I sell my car that is financed?
You can either sell it privately, trade it in, or use a car-buying service. The key is to ensure the finance is paid off, either by using the proceeds from the sale or settling it yourself.
3. What if my car is worth less than the finance owed?
In this case, you have negative equity. You’ll need to either pay the difference out of pocket or roll it into a new finance agreement if you’re buying another car.
4. Can I transfer my finance to the new buyer?
No, the finance agreement is tied to you, not the car. The new buyer must purchase the car without the finance, which needs to be settled beforehand.
5. Can a dealership buy a financed car?
Yes, many dealerships will pay off the finance as part of a trade-in deal, making the process simpler.
6. How do I get a settlement figure?
Contact your finance provider and request a settlement figure. This is the amount you need to pay to clear the loan.
Key Takeaways
- Understand your finance type: Whether you have a personal loan, HP, or PCP agreement will determine your options for selling.
- Obtain a settlement figure: Know how much you owe before selling your car.
- Sell privately or trade-in: Be transparent if selling privately, or let a dealer handle the settlement.
- Negative equity: Plan how to deal with any outstanding balance if your car’s value is lower than the finance owed.
Selling a car that’s on finance can be more complicated than selling one you own outright, but by understanding your agreement and knowing your options, it’s entirely possible to navigate the process smoothly.
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