Can You Scrap a Car That’s Still Under Finance in NZ?

Do you have a financed car that’s no longer roadworthy or taking too much money for regular repairs? You might be thinking of selling it to a car wrecker. However, you cannot sell it directly if the car is under finance. You have to clear or settle the loan first. Let’s break down everything you need to know before calling a wrecker.  

What is Car Finance

Suppose you don’t have enough money to buy a car. You can take help from car finance or car loan companies to purchase a car. The process is straightforward: a finance company or lender provides you funds to purchase a car. 

The finance company or lender retains a legal interest in the vehicle until you have made the final payment. This means your car is not entirely yours. The lender’s name is recorded in the Personal Property Securities Register (PPSR). You can not sell, legally scrap, or transfer ownership of your car without the lender’s approval.

Is It Legal to Scrap a Car That’s Still Under Finance?

No. You can’t scrap or sell a car that’s still under active finance without the lender’s approval. If you do that, you will be considered a fraud because you’re disposing of property you don’t fully own. 

Certified wrecker or car removal companies often check if there’s any finance owing on it before collecting your car. If the finance is still attached, they will usually reject the car unless you can provide proof that the loan is cleared. 

Options if Your Car Is Still Under Finance

1. Pay off the Loan First: The simplest and straightforward way to pay off your remaining car loan amount. Once you pay the remaining balance, the finance company updates the PPSR, and you can legally scrap the car. 
2. Contact the Lender: If the car is damaged or no longer roadworthy, speak to your lender. Some lenders may agree to an early settlement, especially if you provide a valuation from a wrecker.
3. Use the Wrecker Payment Toward the Loan: In certain circumstances, you can arrange for the wrecker to pay for the finance company directly. For example, if the car is worth $3,000 and you owe $ 2,000, the wrecker may send $ 2,000 to the lender and give you the remaining $ 1,000.

How Wreckers in NZ Handle Financed Cars

Licensed car wreckers in New Zealand must obey the law. They would not simply scrap a car that still has money owing without the clearance from the finance company. To proceed, you will need:

• A settlement letter from the lender. 
• Proof of loan clearance. 
• Completed MR15 form from the NZTA to deregister the car. 

This ensures that the ownership is fully transferred and you’re not liable for the vehicle anymore.

Alternatives to Scrapping a Financed Car

If paying off the loan or negotiating with your lender isn’t possible, here are some other options:

• Voluntary repossession – hand the car back to the finance company.
  
• Trade-in or private sale– you can do that with lender involvement, and the buyer or dealer needs to pay off the lender first.
  
• Refinancing – restructure the loan if the car is still valuable.

Steps to Take Before Scrapping Your Car in NZ

1. Contact the finance company to verify the remaining balance. 
2. Once paid, request the settlement letter or loan clearance papers. 
3. Choose a licensed car wrecker that offers the best quote. 
4. Deregister your car with NZTA. 
5. Arrange vehicle removal at a time and date that suits you, and receive payment.