December 20, 2018 at 10:45 AM
More and more cars, both new and used, are being driven off forecourts with finance agreements in place instead of being paid for outright.
This method of payment helps to protect car buyers from the natural depreciation of most vehicles and allows them to sit behind the wheel of a newer model every few years.
Although financing a car may be popular, selling it is a more complicated process when there's still outstanding finance on the agreement.
It's not uncommon to change your mind or want an upgrade; on the other hand, your circumstances might change to a point where you can no longer afford the car, or you could become too ill to be able to drive it.
CAN I SELL A CAR WITH OUTSTANDING PCP (PERSONAL CONTRACT PURCHASE) OR HP (HIRE PURCHASE) FINANCE?
No. That's the short answer because it's illegal to sell a car with outstanding finance to someone without informing them beforehand.
Even though your name is on the paperwork, you are not the official owner of the car on any PCP or HP agreement until you reach the end of the finance term and have made all necessary payments.
The finance company are technically the owners until this point, so the car isn't yours to sell.
If you do want to sell the car before the end of the finance term, you have to settle the agreement first. To do this, you need to contact the finance provider (their name and contact details should be in the original paperwork you received when you agreed to buy the car) and ask for a settlement figure - the total amount outstanding.
This will typically be less than seeing out the contract because you won't pay all of the remaining interest that's attached to the regular monthly payments. However, you may be charged an early repayment fee or administration fee.
A written settlement figure normally lasts for around 30 days and will have a settlement date that the outstanding amount must be paid by. If you don't make the full payment by the given date, you will need to get a new settlement figure and settlement date.
If you ask for a settlement figure, that doesn't mean you're committed to paying it. However, once you make the payment to settle the agreement, you can't later change your mind.
Voluntary Termination (VT)
Voluntary Termination is a legal right to cancel a finance agreement (in this case PCP or HP on a car) early and walk away in certain circumstances as long as:
- You repay 50% of the Total Amount Payable (not the total amount borrowed or half of your scheduled monthly payments)
- There are no damages if you failed to take reasonable care of the good (over and above normal wear and tear)
On a PCP agreement the Total Amount Payable includes the Guaranteed Minimum Future Value (GMFV, or balloon payment) as well as interest charges and fees. Usually, the 50% repayment point isn't reached until nearer the end of the finance term.
In contrast, because HP agreements don't have a deferred payment, the halfway point of the finance term is normally around where the 50% repayment point is.
Although Voluntary Termination doesn't affect your credit score, you still won't own the car or be able to sell it; you'll just stop making monthly payments on it and no longer be able to drive it.
CAN I PART EXCHANGE A CAR WITH OUTSTANDING PCP OR HP FINANCE?
Yes, this is possible, but a lot will depend on how much the car is worth and how much is left outstanding on the finance agreement.
If the value of your car is greater than your outstanding finance, there shouldn't be a problem part exchanging it for a new car. In fact, the surplus money can be put down as a deposit on the new car to help reduce the monthly payments.
However, if the value of your car is less than your outstanding finance, you will be in negative equity. This means that the money you get for the car in part exchange won't be enough to pay off the finance and you will have the pay the difference from your pocket.
Alternatively, you can absolve the difference in the new finance agreement. For example, if the new car you're buying is worth £10,000 and you have a negative equity of £2,000, that can be added together so that you take out a finance agreement for £12,000.
This will increase your monthly payments and mean that you pay a higher amount of interest, but it also means that you can upgrade your car.
CAN I SELL A CAR BOUGHT WITH A PERSONAL LOAN?
Yes, assuming that you paid the full amount of the car with the loan, you can sell it whenever you want. The car is your property as soon as you sign on the dotted line.
This is different from PCP or HP agreements because the deal is secured against the car and you aren't the owner until the total amount has been paid.
Remember, you still have to finish paying off the personal loan even after you've sold the car.