Outstanding finance on a car

Finance is often a convenient and flexible way to pay for a car, but it does mean that you don’t own the car until that finance has been paid off. As a result, with most forms of car financing (such as Personal Contract Purchase (PCP) and Hire Purchase deals) it's not possible to sell a car until the finance is paid off - as it's not yours at that stage.

However, cars may still be sold with outstanding finance by unscrupulous vendors. This is despite the fact that it is illegal to knowingly sell on a vehicle with outstanding finance against it, without informing the buyer.

There are some simple ways to protect yourself, though. These include vehicle history checks from providers like the AA RAC and HPI, or by purchasing from reputable vendors or via classified portals (such as BuyaCar) which guarantee that all the cars they sell are free from outstanding finance. In this article, we’ll explain in more detail how to spot a car with outstanding finance. We’ll also explain what you can do if you do end up buying a car with finance remaining on it.

Having outstanding finance on your own car can also make it a little tricky to move on if you want to change cars. There are, however, ways around this if you need (or simply want) to change cars. So we’ll also cover how you can legally sell or trade in a car with outstanding finance on it.

How to avoid buying a car with outstanding finance on it

The safest way to be sure that a car is free from outstanding finance is to get a vehicle history check. This is especially the case if you are buying the car privately.

The most recognised brand for these is HPI, which pioneered car data checks decades ago and whose brand name has become the generic term for any vehicle history checks. However, there is a wide selection of companies out there that also provide vehicle data/history checks. These include the AA and RAC, Vcheck and Cazana, among others.

Although the precise services you can get will vary - as will their costs - a vehicle data check will generally also tell you if a car has been categorised as a write-off, been stolen, or has had its number plate changed.

If you don’t want to pay for a separate HPI/vehicle history check, then another way to ensure you’re choosing a finance-free car is to buy from a dealer or via an online platform, such as BuyaCar, which guarantees that none of the cars it sells have outstanding finance connected with them.

It is also important to note that, should you find that a car you’re thinking of buying has outstanding finance, then you should not buy it - as the car could potentially claimed by the person or company that owns it.

What to do if you have bought a car with outstanding finance on it

If you discover that you’ve bought a car with outstanding finance remaining, then you could technically owe the original finance company whatever balance remains on that car. This is because the registered keeper is generally expected to keep up with monthly finance payments.

However, provided that you had no idea there was still finance on the car, you do still have the right to keep it. This concept is known as having a ‘good title’ to the car. Unfortunately, the finance company that is still owed money on the car may still contact you for payment or even to recover the car.

In these instances, it’s important to enter into an honest and open dialogue with the finance company and share as much information as possible with them. If they still persist in attempting to recover money from you - or the car itself - then you should contact the Financial Ombudsman and Citizens Advice.

What to do if you want to sell a car that still has outstanding finance

If you want to sell a car that still has finance on it, you must first get in touch with your lender and request what’s called a settlement figure. This is the amount of finance outstanding on the car.

Remember, too, that a settlement figure will only last for a certain amount of time, as you’ll still be making regular payments until you’ve sold your car. So if it’s taking a little while to sell your car then you’ll need to obtain a new settlement figure.

If the amount you can get for the car covers the settlement figure, plus any early repayment or administration charges imposed by the lender, then you’re good to go - provided you have the permission of the lender, as they own the car.

Often a car will be worth less than the overall settlement figure - especially towards the start of a finance contract or in the case of PCP finance, where you pay off the finance balance more slowly than with Hire Purchase. In cases like this, you will need to make up the difference between the car's current value and the remaining finance balance - out of savings, or potentially with a loan to cover the difference.

This situation is known as being in negative equity - as you owe more on the car than it's curently worth - and is more likely to happen early on in a finance agreement, where the vehicle is losing value at its fastest rate and you're yet to pay off much of the finance.

How to part-exchange a car with outstanding finance on it

If you want to trade in a car with outstanding finance on it, the same basic principles apply as if you sell. The difference is that this is a slightly easier route to go down as a trader or dealership can do much of the legwork on your behalf, such as talking to your finance provider and obtaining the settlement figure.

If your car is worth more than the settlement figure, then any excess value in the car (also known as equity) can be used as a deposit towards your next car, which will reduce the monthly payments on the new vehicle. The more equity you have, the more you can reduce payments on your next have. It's the opposite story with negative equity - the greater any negative equity, the greater the additional cost of rolling this into your next finance contract.