Selling a financed car is an intricate process that requires careful consideration despite the urgency to sell the vehicle. This article explores all the details and processes involved when selling a financed car, explaining each step and hurdle you might encounter. Whether you can't understand the type of financing you have on your car or can't determine how much money you'll get after the sale, we'll cover it all, equipping you with the know-how on how to sell a financed car.
When selling a financed car, you should try to understand the type of financing you have on the vehicle. There are four common types of car financing: personal contract hire (PCH), personal contract purchase (PCP), personal loan and hire purchase (HP).
Personal contract hire entails paying a deposit, which in most cases equals a few months of payments on the car. You do not own the vehicle outright, and it's more like renting or leasing it. The rental period usually lasts two to four years, after which you return the car. PCH is a favorite amongst car buyers who prefer owning and driving a new vehicle after a short while. Can I sell a car on personal contract hire? No, there's no way you can sell a car on personal contract hire unless you buy the vehicle at the end of the agreed period. Additionally, most dealerships will not allow you to transfer the lease to someone else. It's only in very tricky circumstances that you can transfer a lease, but again, this will add more fees and paperwork that most car owners are unwilling to deal with. It's better to go for early termination despite the additional fees, often included in a settlement amount.
A personal contract purchase has terms similar to a personal contract hire. The dealership will present a guaranteed minimum future value (GMFV) depending on the car's depreciation rate, which is the car's expected value at the end of the contract. You'll then make a deposit and monthly payments to cover the car's depreciation. At the end of the contract, you should get an option to make a balloon payment to buy the car or get into another personal contract purchase. The balloon payment is the guaranteed minimum future value that was presented initially before getting into the PCP contract. Once you pay that amount, you'll own the car. Can I sell a car on a personal contract purchase? No. Since you don't own the vehicle, it's not yours to sell. You can only agree with the dealership to settle, which will cost you. Then, the contract is terminated, and the car returns to the selling party.
Buying a car on hire purchase is the most widely used car financing method. You pay a deposit calculated as a percentage of the car's value/asking price at the time of agreement. Equal monthly installments are determined and should be paid in a fixed or varying term with a maximum allowance. Also, there's an interest that can be fixed or variable. The deposit and each monthly payment go towards paying off the car, but it's still technically owned by the dealership. Financial institutions could lend you the money to pay to the dealership, and they become owners of the car until you finish paying monthly payments. However, a financial institution will sometimes not require you to pay a deposit on the vehicle. Also, the monthly deposits and interest are not similar when paying to the dealership and a financial institution. Can I sell a car financed through hire purchase? Yes. However, there's a specific process to it. Simply put, you must clear the outstanding debt deducted from the amount totaling the deposit, monthly installments, and interest. The buyer can also pay the debt, which will be deducted from the car's value or asking price.
Financing a car through a personal loan gives you outright ownership. You get the funds from a financial institution through an unsecured loan, meaning it's not tied to the car or any other assets such as your house or business. It's risk-free to you but presents a high risk to the financial institution lending you the money. That's why you'll need an excellent credit score to get approved. Once you get the funds, pay off the car and drive out of the yard with a big smile, knowing you own the vehicle. The loan payment pain will come later, but you'll still own a car! Owning the vehicle allows you to sell it anytime you please without going through various channels to transfer ownership or clear outstanding loans.
From the above-listed car financing methods, only hire purchase and financing through a personal loan allow you to sell a financed car. You can sell a financed car in two ways: in a private sale or selling to a dealership. But before you do that, here's a list of essential things you should do.
The first step when selling a financed car is determining its value. You can do this by checking current market prices and previous sales. However, it would be best to use car valuation websites such as Kelly Blue Book, Parkers, Edmunds, TrueCar, and Consumer Reports Car Value Estimator to determine the car's value. You could try a couple of these websites for a more accurate value and get an average value instead of sticking to one value from one website. Some websites will even give you a wholesale and trade-in value, which is how much dealerships are willing to pay for your car.
Consult with your dealership or financial institution to get the pay-off amount remaining to complete payment on your car, including the interest. This is the most crucial step since you can't get or transfer ownership without paying off the car. Ensure the amount presented matches the amount you got from cross-checking your monthly payment records. While consulting the dealership or financial, inform them that you're planning on selling the car and if they have any policies or guidelines concerning the sale of a financed car. It would be odd if they are against it, but most will allow you to sell the car, provided the amount owed is paid off.
Equity is the difference between the car's value and the amount you owe from financing it. You calculate equity by subtracting the pay-off amount from the car's value, and the result could be either positive or negative equity. Positive equity occurs when the car's market value is higher than the owed amount, so if you sell the car, funds will remain after paying off the loan. For example, if the car is worth $50,000 and you owe $25,000, the difference, which is $25,000, is positive equity. Negative equity, on the other hand, occurs when you owe more on the car than its market value, so you'll have to top up from your own pocket to cover the balance. For example, if the vehicle is worth $50,000 and you owe $60,000, you'll need an extra $10,000 to pay off the loan. If you have negative equity on a financed car, it's not really worth selling as no buyer would dare touch the vehicle even with a 10-foot pole. But if you want to sell the car, maybe get the debt out of your hands, get the outstanding amount paid, and try not to think about the financial loss too much but appreciate being debt-free instead. Don't even think about hiding that the car is financed when listing it for sale, especially when vehicle-checking tools are plentiful and available to everyone in this modern era. All a buyer needs is a registration and VIN; voila, they have all your car's history, including outstanding loans.
When selling a financed car, you are faced with two options: sell it privately or sell it to a dealership. In this instance, selling privately isn't as favorable as selling a car not financed due to the hassle involved, especially with you as the seller being the middleman between the buyer and the debtor. Most car buyers will also avoid cars with finance even though they have positive equity, especially due to the process involved. The best chance you have at selling a financed car privately is to price it below market value to attract buyers. But this won't eliminate the back-and-forth process, so why not sell to a dealership instead? Selling a financed car to a dealership only has one disadvantage: getting a below-market value or wholesale offer. But it isn't that bad considering all the paperwork and hassle you avoid since most dealerships will clear the loan you owe, but that will be factored into how much you get from the sale. Also, if a decent amount remains, you could put it towards a new car by choosing any financing option we mentioned earlier.
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Understanding the implications of selling a financed car is crucial in shaping how the sale goes and keeping all parties involved satisfied, as the process isn't solely about transferring ownership and clearing the loan on a financed car. With careful assessment of the amount owed and transparency, you can confidently sell a financed car, ensuring no issues arise.
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