Before diving into the specifics of scrapping a financed car, it’s essential to understand the types of car finance. The most common forms include:

1. Hire Purchase (HP): You pay a deposit and then make monthly payments. You own the car once the final payment is made.
2. Personal Contract Purchase (PCP): Similar to HP, but with lower monthly payments and a larger final “balloon” payment if you choose to buy the car at the end of the agreement.
3. Personal Loan: You borrow money to buy the car outright and then repay the loan in instalments.
4. Leasing: Essentially a long-term rental agreement where you never own the car.

Outstanding Finance and Ownership

With HP and PCP agreements, the finance company retains ownership of the car until all payments are completed. For personal loans, you own the car, but the loan remains your responsibility. Leasing agreements mean the car must be returned at the end of the lease term.

Can You Scrap a Car with Outstanding Finance?

Legal Ownership

The primary issue with scrapping a car with outstanding finance is legal ownership. If the finance company owns the car, you don’t have the legal right to scrap it without their permission. Scrapping a car you don’t legally own can result in serious consequences, including legal action.

Settling the Finance Agreement

To scrap a car with outstanding finance, you generally need to settle the finance agreement first. This involves paying off the remaining balance on the finance contract. Once the car is fully paid off, you become the legal owner and can then decide to scrap it.

Early Settlement

Many finance agreements allow for early settlement. You can request a settlement figure from the finance company, which will include the remaining balance and any early termination fees. Once you’ve paid this amount, the car becomes yours, and you can proceed with scrapping it.

Steps to Scrap a Car with Outstanding Finance

1. Contact the Finance Company

The first step is to contact your finance company to discuss your options. Explain your intention to scrap the car and request a settlement figure if necessary. The finance company may have specific procedures or requirements for early settlement.

2. Obtain a Settlement Figure

If early settlement is possible, the finance company will provide a settlement figure. This is the total amount required to pay off the finance agreement and gain legal ownership of the car.

3. Pay Off the Finance

Once you have the settlement figure, you need to arrange payment. This could involve using savings, taking out a personal loan, or selling the car to cover the cost. Once the finance is settled, you will receive confirmation that the car is now legally yours.

4. Arrange for Scrapping

With legal ownership transferred to you, you can now arrange for the car to be scrapped. Choose a reputable scrap dealer and ensure you follow all legal requirements, including obtaining a Certificate of Destruction (CoD).

Implications of Scrapping a Financed Car

Financial Considerations

Scrapping a car that still has outstanding finance can have significant financial implications. You may need to find funds to settle the finance agreement, which could be challenging. Consider the car’s value and whether scrapping it makes financial sense compared to other options, such as selling the car.

Potential Penalties

If you scrap a car without settling the finance agreement, you could face penalties from the finance company. These could include financial penalties, damage to your credit rating, and even legal action.

Impact on Credit Score

Settling a finance agreement early and responsibly can positively impact your credit score. However, if you fail to manage the process correctly and default on payments or scrap the car illegally, it could harm your credit rating.

Alternatives to Scrapping

Selling the Car

If your car is still in good condition, selling it might be a better option than scrapping. You can use the proceeds from the sale to settle the finance agreement. Ensure you inform potential buyers of the outstanding finance, as the new owner will need to settle it as part of the purchase process.

Voluntary Termination

For HP and PCP agreements, you may have the option of voluntary termination once you’ve paid off a certain percentage of the total amount payable (usually 50%). This allows you to return the car to the finance company and end the agreement without additional payments.

Refinancing

If you’re struggling with the finance payments, refinancing the loan could be an option. This involves taking out a new loan with different terms to pay off the existing finance agreement. It can provide more manageable monthly payments, allowing you to keep the car or sell it when the market is more favourable.

Conclusion

Scrapping a car with outstanding finance is not a straightforward process and requires careful consideration and planning. The key steps involve contacting your finance company, obtaining a settlement figure, paying off the finance, and ensuring you have legal ownership before proceeding with scrapping.

It’s crucial to weigh the financial implications and explore alternatives, such as selling the car or voluntary termination, to find the best solution for your situation. By understanding the process and your options, you can make an informed decision and avoid potential pitfalls.