The legal position
The simple answer to the question ‘can I scrap my car with outstanding finance?’ is no, but there are some exceptions. The law states that a car’s finance must be paid off before it’s sold, whether that is as a roadworthy vehicle or for scrap. Though the car is in your possession, legally it belongs to the finance lender. The remaining balance on the finance agreement must be paid off when the scrapyard takes the car away.
You’re within your rights to get a quote for a scrap car, but before you hand over the logbook to the scrapyard, all finance balances have to be paid off.
There are different types of car finance, including hire purchase, credit sale and lease. Most types of car finance mean that the car can’t be sold until the finance has been paid off. On a lease agreement, the car is never owned by the driver, but sometimes at the end of the lease period, there is the option to buy the car.
If you get a bank loan that’s not specifically tied to a vehicle purchase, then the car belongs to you as the purchaser and not the lender. This means that the vehicle can be sold at any time, but as the borrower, you are still required to pay back the loan. Similarly, if you take money out of the bank and your account goes into an agreed overdraft, the car is your property and can be sold at any time.
Selling your scrap car
Don’t be tempted to sell your car with outstanding finance. Credit reference agencies, such as Experian and HPI, keep records on car finance on their databases. It’s easy for a buyer to check whether there is any outstanding finance on the vehicle. You may be selling a good quality vehicle in order to pay off the finance, but if this is done without the knowledge of the finance lender, you could face criminal prosecution for fraud.
Legally, a finance company has to give you a settlement agreement and accept a specified amount to cancel the agreement. You are then free to sell the car as scrap or as a roadworthy vehicle.
To sell your car for scrap or as a roadworthy vehicle, first obtain a settlement amount from the finance company. If the finance is on a long-term contract, there could be fees for settling the finance early. If the car is worth more than the finance settlement amount, some dealers will offer to pay this settlement amount direct to the finance company, which will then allow the legal sale of the car. If the car is worth less than the outstanding finance amount, the dealer may pay the finance company the price of the vehicle but you’ll then need to pay the rest yourself to make the car sale legal. This type of arrangement will probably not be suitable for a scrap car due to its low value.
If you want to sell your car for scrap but can’t afford to pay off the outstanding finance, then you must continue to make the monthly payments until the finance is paid off before selling the car for scrap.
When you have a car on finance, it’s essential that you read the small print of the agreement carefully so that you understand your legal obligations and don’t accidentally get yourself into financial or legal trouble.