Can I Scrap a Car On Hire Purchase?

Written by Danny Collins
Last updated: July 19, 2023
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In the UK, there are several ways to get rid of an old car. You can sell it, trade it in, or donate it to charity. What if you don’t want to go through the trouble of selling or trading in your old car? 

If you have an accident with your car or it breaks down, and the repairs would be more than the balance of your finance agreement, you might consider scrapping it. But can you do that if you still owe money on the car?

Since there are a few different financing options for automobiles now, the standard is that you aren’t the car’s owner until the finance has been paid off. So, it’s not up to you if you should scrap the car. You might own a car that’s not safe to drive but can’t be legally disposed of.

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What Are The Type of Car Finances?

purchasing a car on finance

There are two primary types of finance for cars in the UK: HP (hire purchase) and PCP (personal contract purchase).

HP is where you borrow money from a lender to pay for the car’s full value upfront. You then make monthly repayments until the outstanding balance – plus interest – is repaid in full. Once the final payment is made, the car is yours.

With PCP finance, you also pay a deposit upfront and make monthly repayments. But with this type of finance, the lender retains ownership of the car until the final balloon payment is made at the end of the term. You don’t technically own the car until that final payment is complete.

There are types, such as Personal Loans and Leasing. The lender doesn’t own the car with a personal loan, so you’re free to scrap it whenever you want. The same is true of leasing – the vehicle is leased to you for a set period, after which you can return it or buy it outright.

Should You Settle With the Outstanding Finance?

In some cases, it would be possible to work out a deal with the lender to have the debt paid off in full so that you can scrap the car. This will usually only happen if the vehicle’s value has decreased significantly since you took out the finance agreement.

If you’re considering this, write everything on paper before you say yes to anything. That way, there’s no confusion about what is being agreed to and the terms.

Should You Repair The Car?

fixing a car

If you’re considering scrapping the car because it needs repairs, you might want to think about fixing it instead. Depending on the cost of the repairs and the car’s value, it might make more sense to get it fixed than to scrap it.

Of course, this decision will come down to your circumstances. If you don’t have the capital to invest in repairs, or if the car is too old and not worth fixing, scrapping it might be the best option.

Can I Scrap My Car If It’s Damaged?

Yes, you can scrap a car that is damaged. Many people choose to do this because it can be expensive to repair a car that has been in an accident.

However, you should keep in mind that the value of your scrap car will be lower if it is damaged. So, you might not get as much cash for it as you would if it were in good condition.

Can You Scrap a Car With HP Finance?

car on finance

Suppose your car is financed with an HP agreement, which becomes uneconomical to repair. You should inform your insurance company and the lender immediately. They’ll pay the outstanding finance to the lender and issue you a cheque for the car’s value.

You can then scrap the car. The DVLA will need to be informed that the car has been scrapped, and you should receive a certificate of destruction. This will be sent to the lender as proof that the car has been scrapped and the debt has been paid off.

Is It Better To Sell My Car With Outstanding Finance?

selling car with outstanding car finance

When it comes to selling a car that is still under a hire purchase (HP) or has outstanding finance, many car owners find themselves in a predicament. They wonder whether it’s better to sell the car or scrap it. While there is no one-size-fits-all answer to this question, understanding the implications and considering various factors can help make an informed decision.

Selling a car with outstanding finance can be a viable option for those who want to settle their debt and get rid of the vehicle. By selling the car, you can use the proceeds to pay off the remaining balance on the HP agreement. This allows you to close the chapter on finance and avoid any further interest charges or penalties.

Furthermore, selling a car with outstanding finance may be beneficial if the vehicle is in good condition and has a market value higher than the outstanding debt. In this case, you may be able to sell the car for a price that covers the remaining balance and even leaves you with some extra cash in hand.

However, it’s important to note that selling a car with outstanding finance can be a complex process. The finance company or lender holds legal ownership of the vehicle until the debt is fully repaid, which means you cannot transfer the ownership directly to the buyer. Instead, you will need to coordinate with the finance company to settle the outstanding debt and obtain the necessary paperwork to transfer the ownership to the buyer.

Will Someone Be Willing To Buy A Car With Outstanding Finance?

While it may seem challenging to find a buyer for a car with outstanding finance, there are individuals and dealerships who are willing to purchase such vehicles. However, the pool of potential buyers may be smaller compared to cars without any finance owing.

To attract buyers for a car with outstanding finance, it’s crucial to provide transparency and clear communication. Be upfront about the financial status of the vehicle in your advertisements and ensure potential buyers understand the steps required to transfer ownership. It’s also advisable to provide detailed documentation, including the outstanding balance and any relevant information about the finance agreement.

Additionally, some buyers may be hesitant to purchase a car with outstanding finance due to concerns about potential complications or legal issues. To alleviate these concerns, you can offer reassurances, such as obtaining a settlement letter from the finance company once the debt is paid off. This letter serves as proof that the finance has been cleared, and the buyer can confidently assume ownership of the vehicle.

Selling vs Scrapping: What’s Right For Me?

Deciding between selling and scrapping a car with outstanding finance ultimately depends on your individual circumstances and priorities. Here are some factors to consider when making this decision:

1) Financial Situation

Evaluate your financial standing and determine whether you have the means to settle the outstanding debt. If you can afford to pay off the finance and potentially make a profit by selling the car, selling might be the better option.

2) Car’s Condition

Assess the condition of your car. If it requires extensive repairs or has significant issues, it may be more practical to scrap it rather than invest in costly repairs. However, if the vehicle is in good condition, selling it might be more beneficial.

3) Time Constraints

Consider the urgency of your situation. If you need to resolve the outstanding finance quickly or need immediate funds, scrapping the car can provide a quicker and simpler resolution. Selling a car with outstanding finance may involve more time and effort due to the additional steps involved.

4) Emotional Attachment

Some car owners have a sentimental connection to their vehicles. If you have a strong emotional attachment to the car, selling it may be a preferred choice over scrapping, as it allows someone else to enjoy and continue using the vehicle.

Final Thoughts

Scrapping a car is not always as simple as you might think. There are factors to consider before you make a decision, such as the type of finance you have and whether or not the car needs repairs.

If you’re thinking about scrapping a car with HP finance, inform the lender and insurance company as soon as possible. You should also get a certificate of destruction from the DVLA to prove that the car has been scrapped. Always remember, performing a car check can help tell if a vehicle has been scrapped or written off