Cars with outstanding finance: buying and selling guide

The majority of new cars sold in the UK are bought using some kind of finance package and a sizable chunk of the sales made on the used car market are financed too. In most cases car buyers will wait for their car finance deal to end before looking for a new one on another car, but you can sell a car with outstanding finance on it. Here’s how.

Whether or not you can sell a car with outstanding finance will depend on the kind of finance deal you’ve taken out on the car. The basic rule is that if you are the legal owner of the car under the terms of the finance deal, you can sell the car. If you are not the legal owner, you can’t sell. You can either arrange terms with the lender to pay-off the deal and sell the car or there may be a voluntary termination clause that will let you end the deal early.

The three main kinds of car finance in the UK are Personal Contract Purchase (PCP), Hire Purchase (HP) and Personal Contract Hire (PCH), otherwise known as leasing. Let’s run through each in turn and identify whether you can sell a car with that kind of finance outstanding. 

Can I sell a car with outstanding PCP finance?

Answer: Yes

A PCP deal is structured into an initial deposit followed by a series of monthly payments. Then, at the end of the deal buyers either pay a lump sum (the balloon payment) to take full ownership of the car or hand it back to the dealership.  

If you want to sell a car with outstanding PCP finance you’ll need to pay the deal off first. To do this you ask the finance provider for a settlement fee made up of all the outstanding monthly payments and the balloon payment combined. Make that payment and the car is yours to sell.  

Can I sell a car with outstanding HP finance?

Answer: Yes

Hire Purchase car finance deals involve a deposit followed by a series of monthly payments. As with PCP deals you can sell a car with outstanding HP finance by paying off the remainder of the deal. Ask your lender to calculate the settlement fee and once it’s paid, your car can be sold.

Can I sell a car with outstanding PCH finance?

Answer: No

PCH finance, otherwise known as leasing, is basically a long term car rental agreement. You rent the car for a period of time with a series of monthly payments and then you give it back. There’s no option to buy the car and you never own the car under PCH deals, so you can’t sell the car at any point in the deal.

Can I sell a car with a personal loan outstanding?

Answer: Yes

Unlike the other kinds of car finance covered above, a personal loan lets you sell the car before you’ve paid-off the finance agreement. That’s because you are the legal owner of the car as soon as you buy it with the money loaned to you by the lender and the loan isn’t secured against the car. Of course, you’ll still be liable to continue making the agreed loan repayments after the car is sold. 

What if you buy a car with outstanding finance?

As we’ve seen, there are ways to sell a car legally when you have finance left to pay back on it but these all involve settling the finance deal with the lender in some way. You cannot sell a car unless the finance deal you have secured against it is paid in full. Of course, that doesn’t stop unscrupulous individuals from trying to sell cars with finance left to pay and as a car buyer you need to be careful. 

If you buy a car with outstanding finance but had no knowledge that the finance deal existed ‘good title’ rules mean that you have the right to keep the car. The finance company will still want the outstanding payments settled but it is up to the company to prove that you don’t have ‘good title’ to the vehicle. 

If you are contacted by a legitimate finance company suggesting that there is outstanding finance on your car. It makes sense to enter into correspondence on the matter with them but retain copies of everything. You should explain that you bought the car in good faith and include copies of the advertisement and the receipt of sale if you have them. You should also contact the person or business that sold you the car to try and understand if they were aware of the outstanding finance. Again, retain copies of everything. 

If this process doesn’t work and the finance company still demands payment, you should contact the Financial Ombudsman and Citizens Advice. Failing that, you may need to see a solicitor. 

How to check if a car has outstanding finance

In short, buying a car with outstanding finance can cause you a heap of problems so as a car buyer it always makes sense to buy from a reputable dealer who has done the necessary checks on the car or to do them yourself. 

There are many companies offering to check a car’s history for outstanding finance for a small fee of around £5. It should form part of a detailed history check of any car you’re buying in a private sale.