Car finance - what if you can't pay and owe more than the car value?
 

A friend is going through a messy divorce and has an 05 WRX Impreza.

She owes about £8K on finance on the car and needs to sell it as soon as possible. Knowing my love for scoobs she's offered it to me but most I'll give her is £5K (needs major + belt and history has been lost) so unless she finds a way to pay the finance off first I can't buy it.

If she went to the finance company and said she can't pay anymore will they just take the car away? Will they take her to court?

If the finance company will just take the car off her shes better off doing that but if they'll take her to court and punish her financially shes better off using 2 or 3 cards to pay the finance company (if they allow credit card payments) and once the car is in her name I'll buy it from her. Better to service a £3K debt on 0% than an £8K debt on 8%.

However, we need to establish what will happen if she just stops paying.

did she take out gap insurance to cover payments?

Doubt it. I've told her to speak to Black Horse Finance and see what they have to say. She paid £10K and has had the car 2 years.

in that cae i'd pay it off by credit cards as long as payments are right for her, otherwise bank loan if possible as the bank rates are always better than finance

Ive got Fully Comp on my cars...

If she's paid over 50% of the HP total then she is entitled to voluntarily terminate the agreement and return the car without penalty.
Alternatively she can pay up to the 50% agreement figure (e.g. with a CC) and then terminate early.
There may be some odd clauses in her agreement, so double check the agreement termination section before taking this on.

As above if it's a hire purchase agreement you can return the car half way through and that's the end of it :) Sometimes if the car has depreciated heavily you're better off doing this, load of HP companies got their fingers burnt in the recent used car price crash :D

As I remember, I think the HP company own the car until the loan is paid off plus a nominal amount for the car.

If she cannot pay then I expect they have the right to take the car back in lieu of the cash.

Les

Torch it in return for sexual favours. Everyones a winner :D

she sells it to someone else for more money ?

You b*stard! Some friend ;)

TX.

I'd probably go for 5.5K as shes a friend :D

mmmm -- would you consider 5250.00 if she gave you some "executive relief"

Only if it's a regulated agreement.

someone correct me if I am wrong.

I dont think you can pay a loan or hp off with a credit card and if the car is given back then it may just get auctioned and if it doesnt reach the loan amount the person could find herself still oweing money.
Will be very difficult to sell the car privately with HP still on it, unless its to a friend who trusts her to pay it all off,
Vicsous circle I think the saying is I am looking for. I would never buy a car on HP again.

I got burnt by a finance company when I handed a car back many years ago.

They sold the car at auction, presumably for no reserve, as it sold for less than half it's book value.

The finance company then sold the remaining debt to a debt collection agency. They had also (without telling me) recorded me as defaulting on the loan.

I'd read through the small print of the finance agreement very carefully and proceed with great caution. I'd also get the finance company to put everything they agree to do in writing.

I'll never buy a car on finance again. If you can't get a bank loan for a car, you probably shouldn't be buying it until your financial situation means you can.

If it's regulated HP she can voluntarily terminate once she has paid 50% of the TOTAL AMMOUNT PAYABLE not just the amount of the loan but plus all the interest and charges payable and the deposit. The figure will be on the agreement paper work under the heading "total ammount payable".

As a general rule you will not reach this figure untill you are at least 2/3rds into the length of the agreement. This is not to be confused with once you have been paying for half of the agreement.

The only way if you have not reached 50% is to sell the car then pay any shortfall. Or default the finance company will eventually reposses the car once they have a court order (they do not need a court order if you have paid less than a 1/3rd) Sell the car at auction then chase you for any shortfall plus you get a ccj and bad credit rating.