Can I change my Car with Outstanding Finance?

Have you ever wanted to change your car but couldn’t because of current financial payments? A daunting task, especially if you’re unsure of the process. Changing a car with outstanding finance might seem impossible, but it doesn’t have to be.

We discuss what happens when changing a car with outstanding finance and explore the car finance options available if you want to make the switch.

An outstanding car finance agreement is when the borrower has not yet paid off the loan amount. Before selling or trading the car, you must pay the remaining balance.

For example, if you take out car finance for £15,000 and pay back only £10,000, you have an outstanding balance of £5,000. You must pay the outstanding vehicle finance to become the legal owner.

You must contact your finance company if your financial circumstances mean you cannot make your monthly repayments on time. This is especially true if you are in financial hardship due to a loss of employment or illness. Your finance provider is more likely to help by offering reduced monthly payments until you are financially better.

Car finance has many moving parts. The financial loan is tailored to your personal circumstances and the financed car. Swapping cars within your current finance agreement is not possible.

You’ll need to end the agreement first to change a car with outstanding finance. Request an early settlement figure from your finance provider – the amount the lender will accept from you to end your existing car finance agreement.

Yes. But first, you need to consider the implications of changing a car with outstanding finance, particularly on a personal contract purchase contract.

Typically, a PCP agreement can span between three and five years. Individual circumstances change, and you may need to change your car before the current finance runs its full term. What happens when you end a personal contract purchase finance agreement, and how might an early settlement affect the costs.?

A crucial cog in a PCP agreement is the guaranteed minimum future value (balloon payment) is close to the car value at the end of the contract. Lenders’ calculations aim for a positive figure on the car. After the balloon payment, the customer might use the excess equity towards another car on finance. However, when you settle your finance agreement early, the remaining finance amount due might be more than the current value of the vehicle as the car depreciates much more at the beginning than later. The later you can leave a settlement on PCP finance, the better for you financially.

If you decide to go ahead and change your car on a PCP, you’ll need to buy the car outright, which is then legally yours. See the process below:

1. You’ll need to request an early settlement figure letter from your finder provider.
2. Get the car valued. You may want to dispute the amount of the lender’s valuation.
3. Subtracting the settlement figure from the car value determines the amount you owe.

What is Positive equity in PCP finance?

A positive figure is a happy one in which the car value is more than the settlement figure. You can now pay the outstanding finance and, if you want, use the equity as a deposit on another car.

When you settle, if you have not at least paid half the monthly repayments, you’ll likely have negative equity, which means you’ll owe early settlement fees as the car is worth less than the amount you owe.

You can’t change a car with outstanding finance on HP finance.

Can I settle early and buy the car outright?

With an HP agreement, you could settle your finance early and save on interest charges. Check the original HP agreement to see the total price of the vehicle and early settlement fees to buy the car outright.

Can I give the car back?

Depending on how much you have repaid, you could give the car back, which might be helpful if you can no longer afford the monthly repayments. If there is little significance in the current value of the vehicle and your outstanding finance, it could be a smart move.

With an HP agreement, you can settle your finance early, but there are conditions. You’ll have to make the monthly repayments up to the time you terminate your contract. If your payments are less than 50% of the loan, you’ll likely have to make up the difference, as the finance provider is entitled to half of the contract amount under the contract. However, you won’t get a refund if you have paid more than half the finance loan.

BEWARE Some dubious lenders might say you must pay the total amount owed under an HP agreement before ending it. That is not true. If this happens, speak to an advisor.

What happens if I sell a car with outstanding finance?

If you have a car under a finance agreement, such as an HP or PCP, you are not the legal owner  – the vehicle belongs to the finance company, so you do not have the right to sell. You won’t own the car until you settle the debt.

You’ll be committing fraud if you sell your car with outstanding finance, handing over the keys and V5C and taking the cash without your Lender’s permission.

If you want to swap a car with finance, many car dealers are familiar with this process and will assist you with completing the settlement and getting you in your next vehicle.

The process is as follows:

1.     Request a settlement figure letter from your finance provider.

2.    The settlement figure has a short validity, usually ten days. You must settle and sell your car within that time or get a revised settlement.

3.    Payoff the loan as soon as possible with the sale money.

However, if the car has negative equity, you’ll need to make the additional payment to settle the deal.

Buying a car you know has outstanding finance.

If you buy a car, knowing it has outstanding finance, and fail to continue making the repayments, the finance company can repossess the vehicle and even come after you for the unpaid debt.

Don’t buy a car without checking for outstanding finance

Have you paid for a vehicle unaware it has finance remaining on it? Why did you not get a car check? – A quick check confirms such issues as Is the car stolen? Does the car have outstanding finance?

If a dodgy seller catches you, there might be some good news. The right to keep the vehicle is with you. The finance company has to prove you knew the car had outstanding finance on purchase. You will have to produce details of who sold you the vehicle when you bought the car and produce supporting evidence.

What does the law say?

Under the Hire Purchase Act 1964, a buyer will get “good title” to a car which they buy when it is still under hire purchase if they did not know the vehicle was under hire purchase and therefore purchased the car in good faith believing the seller had the right to sell it.

However, there is no guarantee you won’t get hassle-free time for payment. In future, don’t buy a car which has outstanding finance.

If you wish to change your car while it has outstanding finance, the first step is to settle your current car finance agreement. It need not be complicated, and following the proper process, you can sell the vehicle first and use the equity toward a newer vehicle.

Pay the finance settlement figure to terminate your current car finance agreement. You can find your settlement figure on your contract or request a settlement from the finance company. The further you are into the contract, the lower the figure will be.

You want to give the car back to the finance company. You could be struggling to keep up with the repayments. Maybe you still owe more than the car’s value, return the vehicle and want to get another new car loan.

You can use a voluntary termination to end your car finance agreement. You can return the Car provided you have paid at least 50% of the due amount. If you’re in a PCP agreement, the settlement includes fees, interest, and a balloon payment.

Perhaps you are happy with your car but have financial difficulty and need to reduce the monthly repayments.

Refinancing takes you out of your current contract into a new car finance agreement. The new loan pays off the balance on your existing car finance loan and could give you a lower APR along with reduced monthly repayments.

Are you in negative equity with your car finance? The value of your car is less than the outstanding finance. Negative equity often occurs and need not be a problem, but what can you do if you want to change your car or are struggling with the monthly repayments?

A negative equity car finance loan enables you to pay the outstanding finance and fund your next car in one combined monthly repayment.