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Outstanding Balance: Car Finance Jargon Busters

What does it mean when a financed car has an outstanding balance? 🤔 Outstanding balance is a car finance jargon term that refers to the amount you still owe the car finance company. For you to own the car and complete your car finance agreement with the lender, you need to pay the outstanding balance. 

What Charges are Included in the Outstanding Balance?

The specific amount of your outstanding balance and the charges included in it depends on the type of financial product you’ve taken out. For example, if you got a hire purchase car finance agreement with a fixed-rate interest, then you will know the full cost of financing a car at the beginning of your contract. But what if you got a car finance product with a variable interest rate? In this case, the outstanding balance might only show how much you still owe but not the accumulated interest throughout your car finance contract. 

How to Know Your Outstanding Balance

Car finance companies will provide you with a monthly breakdown of how much you owe them. If you have an online account with the lender, you can simply log in so you can view your balance statement. You may also get in touch with your car finance company and request an account statement detailing your outstanding balance. 

Paying Off Your Outstanding Balance Early

Is it possible to pay off your outstanding balance ahead of time? If your financial situation changed and you now have extra money, this is possible. The first thing to do would be to review your contract with the car finance company to know the terms and conditions of your car finance product. You might have questions and things you want to clarify with the lender so the next step is to contact the car finance company. Inform them that you want to settle your car finance early. 

One thing to remember though is that lenders earn their profit from the interest they charge on their car finance products. If the type of car finance you have is one with a variable interest rate, it’s possible that you’d have to pay an additional fee before you can end your contract with the lender early. Generally, paying off your outstanding balance ahead of time is great for your credit rating because it shows that you’re more than capable of handling your loan responsibility. 

Can I Sell My Car with Outstanding Finance?

The short answer to this question is no, you can’t sell a car that still has outstanding finance. If this is the route you want to follow though, the first step you need to take is to contact your lender and aks how you can end your car finance agreement early. You may do this by paying the outstanding balance you still owe the car finance company. 

You may contact the lender and request a settlement figure. Once you know your outstanding balance, then you can pay it off. When the car is yours, you are then free to do whatever you want with it. It would only be at this point that you can sell the car. 

If you haven’t reached 50% of the total cost of financing the car, it might be possible to simply return the car. But for this to happen, you need to make enough repayments on your loan so that the total amount you’ve paid will reach half the total cost of your car finance. 

In a different scenario, you may consider voluntary termination. This is when you’ll hand back the car to the car finance company and you won’t need to make any payments after that. But you should have reached 50% of the total amount already. If you haven't, this will be a debt you need to settle. Don’t worry that going this route will affect your credit score because it won’t as long as you have paid the required amount back to the lender on time. 

Selling a Car with Outstanding PCP Finance

If you have a PCP car finance contract, you still can’t sell a car with an outstanding balance. You only become the legal owner of a financed car once you’ve made all the monthly repayments, and in this case, you’ve also paid the optional balloon payment. So, what happens if you sell a car but it still has outstanding finance? This is an illegal act because the car you’re trying to sell is not yours but the lender's. It is not within your rights to sell it. And these days most buyer do perform an HPI check so would find out about the debt held against the car.

I Have Bought a Car With Outstanding Finance

Technically, you cannot buy a car with outstanding finance because this would be an illegal transaction. The seller does not have the right to sell a car with outstanding finance because it is not his or hers until all their debt is repaid. However, as mentioned above, to avoid making this mistake, you may perform an online check on the vehicle so you’ll know its finance status. You can do an HPI check (Hire Purchase Investigation) to see if it has any outstanding finance, and this will also show if the car was reported as a stolen vehicle, if it has been written off by the insurer, and whether it has been involved in an accident. So always worth doing and really a must for private buyers particularly.

So do make sure you perform these checks first to avoid purchasing a car with outstanding finance,  and also make sure all its documents are accurate and present. If something doesn’t look right and the seller is not being helpful, it’s best to walk away. You might end up losing the car later if you buy one with an outstanding balance. The worst part is that you might not be able to get your money back either. 😩

Takeaway

A car that has an outstanding balance is still owned by the car finance company. The person using it cannot sell the car or even modify it until such time when they’ve settled all the repayments and the ownership of the vehicle has been transferred to them. 

If you want to settle your car finance early, be sure to get in touch with your car finance company so they can guide you on the necessary steps. Check your car finance agreement and take note of any fees and charges you may have also to pay to end your contract early. 👍

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