Many of today’s drivers purchase their vehicle using car finance, be it personal contract hire (PCH) or hire purchase (HP). It’s hardly surprising given the impressive number of options available from car dealers including the likes of 0% finance, nil deposit deals and tailor-made finance packages.
However, if you already have a car on finance, but find for some reason that it no longer suits your requirements, you may be wondering what your options are? Are you stuck with the car until the end of the finance agreement or can you sell a car on finance?
The good news for anyone exploring settling their existing car finance is that it is possible to settle car finance early. Although, there are some things you need to be aware of when it comes to settling car loan debt, all of which we will aim to cover in this blog.
Why let existing finance get in the way of upgrading your car?
So what happens if you have a car on finance, but you suddenly find that you need to change models? Maybe your circumstances have changed, and you can no longer afford the monthly charges, or you are planning a family and your chic city car is no longer suitable?
All of these are situations we could easily find ourselves in, and as a result, you may be wondering if it is possible to sell a car on finance. This can be a pretty stressful situation to find yourself in, however, it needn’t be the case as changing a car with outstanding finance is possible with many lenders.
Buying a car with outstanding finance
It is possible to buy a new car even when you have outstanding finance on an existing vehicle. In fact, it’s a pretty straightforward process.
To start with you need to find out the current value of your car. Our free online valuation gives you the chance to get a no-obligation estimate of your car’s worth.
The next step is to find out what the settlement figure on your current car is by contacting your lender. A car settlement figure is the amount of money needed to pay the lender to end the agreement. Your lender should provide a settlement figure within 12 days of your request.
Once you have your car settlement figure, you need to deduct this amount from the estimated valuation of your current car. If this is a positive number, it means you have some equity in your current vehicle and can use this to put towards your new chosen car.
However, if the figure you reach from these calculations is negative, you are in negative equity, and you will need to pay an additional amount to settle your car finance.
Don’t panic though as you still have plenty of options available to you which we’ll look at in further detail below.
Negative equity car finance
So you’ve discovered that you are in negative equity with your current car finance agreement.
But what does that mean?
Negative equity car finance is when your car is worth less than the outstanding amount owed on finance. In effect negative equity car finance means that should you wish to sell the vehicle you’d be unable to pay off the full amount of finance.
Negative finance occurs when the car loses value faster than you have repaid the loan. It is quite normal to be in negative equity at the beginning of the car finance agreement, as cars depreciate quickly in value in the first year.
However, this negative equity evens itself out throughout the finance agreement so is not usually something you need to worry about. Lenders account for this, assuming you stick to the mileage agreements and keep the car in good condition.
However, in the case of PCP deals, negative equity can occur at the end of the agreement when you go over the agreed mileage and fair wear and tear conditions. Doing so reduces the end value of the car, which is why it’s important to set realistic mileage at the beginning of your PCP agreement.
You can avoid the likelihood of getting into issues with negative car equity by choosing a model that is within your budget, putting down a larger deposit at the start of your agreement, sticking to the mileage limits and keeping the car in good condition.
Can you swap finance from one car to another?
Switching car finance to a new model mid-way through your deal may seem like a daunting process, but it is pretty straight forward. In essence, you need to settle your existing finance and organise finance on a new model.
When it comes to settling car finance there are three main options available to you;
- Settle the car finance early by paying the settlement figure. In most cases, you need to request your settlement figure and pay the outstanding amount off. However, you should be aware that this option can be costly and is unlikely to be the ideal solution if you are already struggling to make your finance payment currently.
- Sell the car and use any funds to settle your existing finance. With this option, you need to make sure that you have the lenders permission to sell the car, as you are not the legal owner. You should also be aware that some lenders will only agree to the sale through a dealership who will pay the outstanding finance off on your behalf.
- Part exchange the car or swap to a new model which we cover in greater detail in the section below.
Part exchange car on finance
You can part-exchange a car on finance through a company who will settle any existing finance on the model you are trading in.
Be aware that if you are in negative equity, part exchange is still possible, but you will need to pay the shortfall between your car’s current value and the settlement figure on the finance.
You can pay the shortfall from any savings you may have. However, a more convenient option for most people is to opt for negative equity finance. Negative equity car finance allows you to roll the outstanding amount of car finance into your new finance deal.
If you are looking to part exchange to reduce the monthly payments of your current finance but are in negative equity, then you will need to look to swap for a less expensive model. You need to ensure that your monthly payments are less even when adding in any negative equity finance.
Settling car finance the hassle-free way
At Stoneacre, we can help take care of the administration of settling existing car finance early on your behalf; often liaising with your finance company, obtaining your settlement figure and clearing your current finance deal, which leaves you free to concentrate on picking your new model.
Representative example: £19,121.93 repayable over 48 months. 48 monthly payments of £323.72. Deposit of £1,266.23. Amount of credit £17,855.70. Representative 11.36% APR. Fixed rate per annum 6.46%. Final Payment £8,511.57. Option to purchase fee £399.00. Cost of Credit £6,194.43. Total amount payable (Incl. Deposit, charge for credit, final payment & purchase fee) is £25,715.36.
