Selling a PCP car: your rights during, and at the end, of a finance agreement

Want to end your PCP finance deal early to upgrade to a new car or as your circumstances have changed? Read our guide to selling a PCP car

BuyaCar team
Aug 30, 2019

The low monthly payments of Personal Contract Purchase (PCP) have made it the most popular type of car finance in Britain. Millions of cars on the road today are being paid for in monthly instalments, by drivers who like the affordability and flexibility of PCP finance.

Many make their payments as planned and then return the car or buy it at the end of the agreement, and some want to sell the car at this point. There are also plenty of drivers who find that they need to hand the car back early, perhaps to upgrade to a different model, or if payments are proving hard to meet.

Until you've made the optional final payment to settle the PCP agreement, however, the car belongs to the lender, so you can’t simply advertise the vehicle and sell it whenever you like. This remains the case at the end of the agreement: until you have made the final "balloon" payment to buy the car, it’s not yours to sell.

However, you are often able to sell the car with the agreement of the lender. Alternatively, you could part-exchange the vehicle for another one using any value in the car above the remaining finance balance - known as equity - to put towards the deposit on your next car. Invariably, however, most if not all of the money from the sale or part exchange - especially earlier on in a contract - goes to the lender to repay what’s owed.

In fact, earlier on in a contract the vehicle is likely to be worth far less than the remaining balance, meaning that even if you were to sell it, you're likely to still owe the finance company a substantial amount - potentially amounting to several thousand pounds.

 

Selling a PCP car at the right time

Whether selling your PCP car makes sense or not will depend on how much you still owe on your finance agreement (including the optional final payment), and the current value of your car.

A car's value tends to drop steeply as soon as you purchase it, whether it's a new or used model. Unless you put down a large deposit, this is likely to mean that you owe far more than the car is worth in the early stages of the finance agreement.

If you sell the car at this point, the proceeds are unlikely to cover your debt and you'll need to make up the difference. This is known as being in negative equity and is the same concept experienced with a mortgage when the value of a house drops below the amount of borrowing on it.

In contrast, at the end, your car may be worth more than the remaining finance owed. In this case, you can be left with some money once you've sold the car and paid off the finance balance, which many buyers use towards their next car, shown in the diagram below.

Car value and finance owed during an example PCP agreement

We’ve set out some of the most common options below, with advice on selling your car during, or at the end, of your agreement. Click on the situation that’s relevant to you to jump straight to the information.

Selling your PCP car before the end of the agreement

Ending your PCP agreement early can be beneficial in the right circumstances. You may be able to reduce your monthly payments, change to a more suitable car, or upgrade to a different model that you like the look of. You’ll usually avoid paying most of the remaining interest.

However, in other circumstances it may be poor value, as you’ll have to ensure that the lender is repaid everything that’s owed - the earlier you want to sell the car, the more you're likely to have to pay. This can require you to raid your savings or go into more debt, so it's worth thinking carefully before taking the plunge.

Here are three ways to sell your car during the agreement

Selling a PCP car by part-exchanging it

Car retailers deal with part-exchange PCP cars daily, so you are almost guaranteed a smooth transaction if you’re looking to trade the car in for another one. You can do this at any time during the finance agreement, but this can prove costly, depending on the value of the car at that time and the amount that you still owe.

You’ll need to request a settlement figure from your lender. This is the amount that you’ll need to pay to end the agreement early, and includes the remaining monthly payments as well as the optional final payment.

Towards the end of PCP agreements, cars may be worth more than the settlement figure. In this case, you should be able to part-exchange your car for a different one without too much trouble. Your finance will be settled by the retailer you’re buying your next car from and any surplus can be put towards the finance on your next car.

When the settlement figure is higher than the remaining value of the car, you will have to make up the difference. This can be a one-off payment to the lender. Alternatively, you may be able to take out negative equity finance, where the difference is added to the finance on your next car. Your monthly payments then cover both costs. Be aware, though, that this increases the total amount of interest you're paying.

 

Selling a PCP car to a car-buying company

Once you have your settlement fee, you may want to get a quote from a car-buying company to see how much they will pay for the vehicle, which may be more than you're offered for a part-exchange. Make sure you mention any damage, which some firms are quick to use as a reason to cut the payout when you go to drop the car off.

You’ll need the agreement of your lender to sell the car again. The car-buying company will usually pay the lender what is owed directly.

A valuation that’s higher than the settlement fee should leave you with surplus cash. If there’s a shortfall, you’ll normally pay the car buying company the difference between the car’s value and the settlement fee.

 

Selling a PCP car privately

Selling privately will often raise more money than trading-in or selling to a company, but you’ll have to manage the process yourself. You'll also have to reassure buyers who are often wary of buying a car that has existing finance.

The process is very similar to those above. Once you have the agreement of your lender, you can sell to a private buyer who will typically pay the lender directly. You’ll need to make up any shortfall to ensure that the lender receives the full settlement fee, before the buyer gets confirmation that the finance has been settled and that they are the new owner.

If you sell the car for more than the settlement fee, you will be able to pocket the difference.

  

Selling your PCP car at the end of the agreement

Many drivers with PCP finance don’t even consider selling their car at the end of the agreement, as the alternatives are much easier. Some return the car to the finance company. Others decide to buy the car by paying the lump sum optional final payment that was fixed at the start of the agreement.

Another popular option is to trade the car in. As cars on PCP are often worth more than the lump sum required to buy them, this can release money to put towards the deposit on another car.

If the car is worth more than the debt, then selling it should also release cash - perhaps more than if the car is traded in. You can either make the optional final payment and then sell the vehicle, or sell it with the agreement of the lender just before the term comes to an end, as detailed above.

You'll have to decide whether the potential benefits are greater than any added hassle of selling the car yourself.

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