How to check whether a car has outstanding finance

The statistics continue to tell their own story about the popularity and relevance of car finance; as of 2022, some 92% of new private car sales are purchased through new car finance agreements.

However, what this means is that at any one time, a given car is very likely to have a car finance deal attached to it, with the associated responsibilities for the person who took out the agreement. That, in turn, could have significant implications for the potential sale of that car to anyone else.

As they say, “life happens”, and that’s definitely the case when it comes to finance and cars. You might need to buy a car, but you may be anxious to ensure there isn’t any outstanding finance on it when you do – as indeed, you should be alert about. Or you might be the one with a car that you are looking to sell, but which has outstanding finance associated with it.

In situations like the above, what courses of action should you take – and above all else, how can you be sure that a given vehicle does, or doesn’t, have outstanding finance? Below, we’ll answer all these questions.

What is meant by ‘outstanding finance’ on a car?

When sites like ours talk about a car having “outstanding finance” on it, what we’re referring to is a situation where a person has bought a car on finance, but they haven’t yet completed all the payments necessary in order to complete the loan term and acquire the vehicle for good.

It is important to appreciate that when you commit to the kind of car finance that a broker like Car Finance Genie typically offers – in other words, hire purchase (HP) or personal contract purchase (PCP) finance – the car won’t initially be legally yours. Instead, the vehicle will legally belong to the lender, until you have completed all the necessary payments in line with the terms of the deal.

A car finance deal, after all, involves someone borrowing money from a lender to enable them to pay for a car. Such an agreement typically involves an initial deposit being paid, followed by fixed monthly payments until all the money owed has been paid off.

Until the driver has completed all such payments on their own car finance deal – in other words, ‘settled’ the loan – the car will be said to still have outstanding finance.

So, is it illegal to sell a car with outstanding finance?

The short, simple, and ‘safe’ answer to this question is: yes, it is illegal. Indeed, this is the answer you will be widely given if you Google this very question and peruse the various other articles out there on cars with outstanding finance.

The principle of this is very simple: if a given driver is driving a car on a PCP or HP deal as we described above, and there are still payments to be made on the loan before it will be considered settled, they will not have the right to sell the car, because the car won’t yet be theirs to sell.

So, if the driver in this situation did try to sell a car that is still on an active PCP or HP agreement, they would be risking serious legal consequences, including prosecution for fraud, and potential imprisonment.

Now, if you’re sensing a looming “but”, you’re right. You see, the situation is different for those who purchase a car with a personal loan. In this situation, there isn’t any direct connection between the car and the loan, with the person taking out the loan simply using the money borrowed to buy the car outright.

This means they would be entitled to sell the car even in the event of there still being money left on the loan for them to pay off. Of course, in this situation, selling the car would not affect the loan; the debt would still need to be repaid.

Is there a legal way of selling a car with outstanding finance?

Presuming it’s a HP or PCP deal that the given motorist has on their car, and they didn’t use a personal loan to fund their purchase, if they wish to sell the vehicle, they will need to first settle the agreement in some way in order to stay on the right side of the law when selling the car.

The first thing that such a motorist should do, is check the paperwork on their finance deal. This should set out terms that will need to be complied with if the driver wishes to settle the deal – for example, by paying off the balance early.

Another common way of selling a car with outstanding finance, is selling it to a car dealership. What typically happens in this situation is that the dealer agrees to settle the car finance as part of their purchase, with the motorist then being paid any difference.

Of course, in the above scenario, it might turn out that the driver owes more than the car’s value – in which case, the dealer will usually let them know of this shortfall. The motorist will then need to make up the difference before proceeding with the sale or trade-in process.

What are your options for checking whether a car has outstanding finance?

There are a few possibilities; perhaps the most obvious one, particularly if you are interested in buying a particular car from a private individual rather than from a dealer, is to use one of the services out there that are dedicated to checking a car’s history.

These checks are typically referred to as ‘HPI checks’, in a nod to the company that is especially well-known for offering them. However, there are various companies around these days that can carry out such checks.

The emphasis is on checking a range of aspects of a car’s history and status – such as its insurance write-off status, MOT history, and whether the given vehicle has outstanding finance – to help you avoid any nasty surprises.

Services like this also tend to look into such aspects of a vehicle as the number of previous owners DVLA has listed for it, and whether it has previously had a personalised number plate.

As far as dealers are concerned, they usually undertake their own HPI checks of cars before agreeing to take them into their stock, so if you’re buying a car through this route, you should have reasonable confidence that it won’t have outstanding finance attached to it. But we would still recommend you specifically asking the given dealer whether they do this, just to be sure.

As we said above, though, it’s when you are buying from a private individual that you are likely to need to be especially vigilant. While it’s free to check the MOT history of a vehicle via GOV.UK, this service won’t tell you whether the car has outstanding finance, or indeed has been stolen.

There’s something else we feel important to point out if you’re looking to buy from a private owner: it can sometimes take a few working days for the relevant systems maintaining information on outstanding car finance to update themselves, in the event that the car finance has recently been settled.

So, if a seller tells you that the settlement amount has just been paid but this isn’t yet reflected in the result of the HPI check, don’t presume they must be lying. You might therefore be well-advised to take your time in ordering the HPI check before you finally agree to buy the car.

What should I do if I buy a car that turns out to have outstanding finance on it?

As we stated above, there might be a few days’ wait until the payment of the settlement amount on a car finance deal is reflected in the result that a HPI check produces on the relevant vehicle.

However, it can be tricky in these circumstances to determine the truth of the situation, without at least allowing a few days to pass. You should get in touch with the dealer or person who sold you the car as soon as possible, and they ought to be able to clarify the situation for you.

If this doesn’t put your mind at rest, it might be worth reaching out to the company with which you checked the car’s history, to ascertain whether the records might have just been updated.

In the event that you really do end up buying a car that has outstanding payments on it, you might be entitled to keep it, if you are able to prove that you bought the vehicle in good faith, with no knowledge of the outstanding finance.

In the above situation, the car finance provider will carry out its own investigations to determine whether you are an innocent party, and so that it can decide who will need to pay the outstanding finance.

Although there’s a good chance that the person who took out the original car finance agreement will be the one who is expected to pay the outstanding finance, it’s not impossible that the car finance company will instead consider you liable for the remaining amount. If that’s the case for you, it could be a good idea to seek legal advice or to reach out to the Financial Ombudsman Service.

Here at Car Finance Genie, we specialise in providing car finance perfect for people in Essex and around the UK, through our panel of industry-leading lenders. Whatever your needs and expectations may be from your next car, please don’t hesitate to turn to us for a competitive tailored car finance deal.