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There's technically no legal way of selling a car with a finance agreement outstanding as, at that point, you're not yet the legal owner. In order to sell a car with finance on it either you or the dealership that you're selling it to will need to agree the terms on which you can buy yourself out of the agreement.
This usually entails obtaining some sort of credit in order to pay off a sum that very often amounts to several thousand pounds. If this is going to be difficult then you're probably better off going to a dealership. They might be better placed to agree credit on your behalf, on the basis that they're willing to buy the vehicle and help you pay it off right away. However, you can often find better credit deals on your own.
Moreover, selling to a dealership is generally a sure fire way to get less than you would for selling your car elsewhere, and should only be done when other options are closed to you. Settling the finance agreement on your own and then selling to a private seller could make you much better off.
The first step to getting out of your finance agreement is to get a settlement figure from the finance company. You can either do this yourself or, if you're selling to a dealership, they may be able to do it for you. A settlement figure is the amount they'll charge you for paying off your finance early and, in the UK this was until very recently, calculated according to a standard formula called the Rule of 78s.
Although it's calculated by a slightly different rule now, the Rule of 78s still gives a pretty good indication of the amount that you're likely to be paying off. It's calculated like this. If you agreed finance for one year then that's 12 months. Each month is assigned a number with the first month being called 12, the second month 11, the third 10, etc. This goes all the way down to 1. (If you'd agreed two years then you would have started with 24).
The rule is used to calculate how much of each instalment you've made was used to pay off interest and how much was used to pay off the amount the car cost. When you pay off your settlement agreement you are paying off the car's value plus no more interest as you are finishing the agreement early. As such, you need to use a rule to figure out how much of what you have already paid off was just paying off the annual interest and how much was paying off the value of the car.
The idea is the interest payments are front-loaded so that in your first month's payment you'll have paid off 12/78s of the interest, 11/78s in your second month, 10/78s in your third month. On this basis you can calculate that a large percentage of your first few payments will have only paid off interest, leaving you a certain amount of the car's value to pay off as a settlement amount. There are many different Rule of 78s calculators online including this one.
In the UK, no matter how long you've agreed to pay off your finance for, a company is legally obliged to give you a settlement agreement if you ask for it. You may be required to prove your identity but after that point the company has to quote you a figure. If they refuse you're entitled to take your case to the government's independent Financial Services Ombudsman located at financial-ombudsman.org.uk
Unless you can pay this amount off there's absolutely no legal way of selling your car. Luckily, most people can qualify for some form of cheap short-term credit or other. The first place to look is your savings or those of your friends and relatives. If you can prove to them that you're about to sell a car and only need the money for a very short period of time they may be okay about lending you some money, particularly if you've already found a few interested prospective buyers.
For those who can't find funds in this way there's always the option of finding a 0% credit card deal. There many of these listed at the Money Saving Expert website. They provide most people (with decent credit ratings) with the option to pay off their finance arrangement before selling. However, if you have a poor credit rating, or credit card companies generally refuse to lend to you for any other reason, then you may have to try a slightly higher-interest way of obtaining credit cards using the companies listed on the same website on this page
If you're unable to obtain credit from a credit card loan provider then you may want to try to get your bank to agree to lend you an unsecured loan on the basis of the projected income from your car.
If your bank will not agree then there's likely to be a â€˜credit union' near you who will. The easiest way to locate your local credit union within the UK is from the www.findyourcreditunion.co.uk website which allows you to search by postcode. Most credit unions are local organisations, run in the interest of their members. They generally provide good customer service and are willing to take unusual circumstances into account.
Other than this, as already stated, many dealers will help you agree short-term credit more easily as they provide a guarantee that it will be paid off within a certain time frame. If you're struggling to agree credit on your own, take your car to a dealer and discuss what they can offer you.
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