Can you sell a car on finance?

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There are many reasons why motorists choose to buy their car on finance, instead of simply purchasing it outright. You may have done so because you didn’t have the savings in the bank to do the latter – or you might have technically had the money, but decided that you preferred to effectively spread out the costs of your car purchase over time.

Depending on your circumstances and needs, taking out car finance can be a smart move. However, life happens, and it’s possible that you’re reading this because those circumstances and needs have changed. That might mean you no longer need the car you presently have on finance – or you may even want to switch to a more suitable vehicle.

Plus, we are in financially challenging times for many. A lot of drivers with car finance deals might have taken them out years ago, at a time when their personal circumstances and the broader economy were more stable. But the combined effects since then of the COVID-19 pandemic, the cost-of-living crisis, and further global economic certainty brought by the Russian invasion of Ukraine, might have left you struggling to continue making your payments.

So, if the above describes your situation, can you simply sell your car with the existing finance on it?

No, you can’t sell a car on finance – well, sort of

There’s one very important thing to note here, so we will set it out loud and clear: it is against the law to intentionally sell a car for which you have not yet paid off the entire loan owing against it.

You could face serious legal consequences if you proceed with such a sale, which could include you being charged with fraud if the buyer discovers that they’ve purchased a car from you that has outstanding finance. You could end up in prison for this, and a fraud conviction could severely hamper your chances of obtaining credit in the future.

This doesn’t even account for the fact that even if you sell the car and you and the buyer complete the section of the vehicle registration document (also known as a V5) to transfer the vehicle to a new keeper, the finance company will still expect continued payments to be made towards the finance agreement. They will therefore seek to recover these payments from either you or the new owner, and if those payments still aren’t forthcoming, they will repossess the car.

Even once the car has been repossessed in such a situation, there might still be money owed beyond this. The finance company might therefore take you to court to recover the rest of the funds.

As you can see, the legal and practical consequences for you of selling your car if it still has outstanding finance can be severe indeed. So, in our above declaration that you can’t sell a car on finance, why did we say, “sort of”?

Well, that’s because some complexity can arise in relation to what counts as ‘car finance’, and what doesn’t. The term ‘car finance’ can be used somewhat liberally at times, and there are many different types of deals out there. So, let’s take a closer look at the different funding options for purchasing a car, and what the situation is for them if you wish to sell your vehicle.

The different types of ‘car finance’, and what they mean for selling a car  

Below are the various forms of finance that someone might use to purchase a car – and how you should handle the situation in accordance with the specific type of finance you have.

  • Personal contract purchase (PCP) plans are the most common type of car finance in the UK, and are taken out by many of those who request finance through us here at Car Finance Genie. One of the distinctive things about a PCP deal is that the vehicle will not be legally yours until you have paid the ‘balloon’ payment at the end of the finance term; until then, it will belong to the lender. An advantage of this kind of deal, though, is that precisely because you don’t own the car unless you make that ‘balloon’ payment, if you wish to get rid of the vehicle, you could simply choose to return or exchange it once the loan term ends.
  • Hire purchase (HP) is another popular type of car finance agreement among those contacting Car Finance Genie. As is the case with PCP deals, with HP car finance, the vehicle will not be yours until you complete the payments – except that you don’t have to make a ‘balloon’ payment at the end. With regard to settling the outstanding finance so that you can sell the car, if you have a HP deal, there will often be an ‘option to purchase’ fee that you can pay to make the car yours. Then, you will just be able to sell it.
  • Lease or contract hire involves the vehicle remaining the property of the lender, and there isn’t normally an option on this kind of agreement to buy the car outright – so, you can’t sell a lease or contract hire vehicle. If, though, you wish to switch to another vehicle, this may well be possible if you have a lease or contract hire car.
  • If you acquired your car through a credit sale agreement, at the moment of the sale being agreed and the paperwork completed, the vehicle would have legally become yours. So, as you own the car, the lender can’t repossess it, and you are entitled to sell it. If, though, you fall behind with your repayments, the lender can take court action to recover the funds you owe them.
  • Personal loans are interesting in this regard, in that in some ways, they can’t really be considered ‘car finance’ at all. Basically, you took out a personal loan, and you just happened to use that money to buy a car. This means there isn’t the direct legal connection between the car and the borrowed amount, that there would be with other finance options for buying a car. The exception to that would be if the loan is secured against the vehicle – but if this isn’t the case for you, you should be entitled to sell the car with no need to settle the agreement first. You will, however, need to keep on making any payments that you still owe on the loan.

Hopefully, the above will have made clearer the situation for you if you have been contemplating selling your car on finance. But to be on the ‘safe side’, we would definitely urge you to check with your lender what kind of car finance agreement you have, and what your options might be for selling, returning or exchanging the vehicle. After all, it might have been years since you took out the deal, and it can be easy to forget important details of the terms and conditions.

So, how exactly do I legally sell my car if it’s on finance? 

Basically, given the serious legal implications we have set out above if you were to sell your car with finance still owing against it, if you want to sell your vehicle privately, you will have to arrange to settle the finance agreement before selling the car.

If you have a PCP or HP deal, you will have the legal right to end the finance agreement early. The specifics of this will be outlined in the documents you were given when you took the deal out.

The basic process here will be to approach your lender, and request a ‘settlement figure’ from them – this being the total amount you have to pay to clear the outstanding payments on your agreement, so that the car can become legally yours and you will be entitled to sell it. You can then simply pay the settlement agreement, and the lender will confirm to you that they have ceased to have a legal interest in the car – meaning it is now yours and able to be sold.

If you receive a settlement figure but you aren’t in a position to pay it, you might have the option of selling the financed car to a dealer. This would involve you discussing with retailers how much they would be prepared to offer for your vehicle. The retailer might be able to deal with the lender on your behalf, and come to an arrangement whereby they pay off the finance provider directly.

If, after doing this, there is some money left over, the dealer would then transfer this to you. Alternatively, it may turn out that the settlement figure is higher than the value of the car. That would mean that, in the event of you going through the above process with a dealer, you still have an amount remaining to pay to the finance company. So, it is important to be prepared if this seems likely to be the case for you.

What alternatives do I have to selling the car?

Depending on your circumstances and specific car finance agreement, even if it turns out you are unable to sell the car, you might have other options for dispensing with the vehicle. These could include:

  • Trading in the financed car. This would involve you asking for a finance settlement figure, and the retailer that you’re dealing with potentially assembling a deal on a different car. The package would involve your current car finance being settled, and the start of a new agreement for a different car.
  • Handing the car back to the finance company. With there being different ways to do this, it is crucial to be well-informed about the implications of each. You might opt for the ‘voluntary termination’ of your deal, for example, with your rights to do so laid out in Section 100 of the Consumer Credit Act 1974.
  • Continuing to pay until the loan is paid off – which might be the best all-round option if you are approaching the end of your contract anyway.

Phew! We hope that the above will serve as a useful rundown for you of the law and your options if you have been considering selling a car on finance.

And don’t forget that if you are on the lookout for a new finance arrangement for that vehicle you’ve long had your eye on, Car Finance Genie can help you obtain affordable car finance with no deposit. It could take you just a few minutes to apply online today for your free no-obligation quote!