If you have outstanding finance on your car but still want to sell it, this guide will help you understand what’s legal, what’s illegal and what you need to do to sell a car which is subject to a finance agreement.
The way to handle the sale of a car with outstanding finance varies depending on the type of finance agreement.
There are four main types of car finance:
As an overview, it’s illegal to sell a car that has outstanding car finance so you’ll need to settle the debt first. If you’re trading in your financed car, most good dealers will be able to handle the outstanding finance and pay it off for you as part of the transaction.
Selling privately is more difficult, but it is possible. You can also consider selling with Motorway.
PCP or Personal Contract Purchase
Personal contract purchase (PCP) agreements are one of the most popular ways to buy a new car. Under these finance agreements you don’t own the car so you can’t sell it until you’ve paid the outstanding finance.
A PCP finance agreement is structured so that you pay a deposit first, then a monthly payment for a set length of time (usually around two to four years) and after the monthly payments you can then either hand the car back or pay an agreed final amount, often referred to as a balloon payment or optional final payment. The car is then yours, the finance is paid off and you can sell the car.
If you’re planning to sell the car before the term of the agreement you’ll need a settlement figure from the finance company which will need to be paid before you sell the car. This is simple if you’re trading the car in against your next model because the dealer will be able to handle the process for you. To sell the car privately you’ll need to ask the finance company for a settlement figure, pay this off and then you’ll be able to sell the car.
PCH or Personal Contract Hire
A personal contract hire (PCH) finance agreement is a personal lease; in effect, you’re renting the car for a fixed period of time. Personal contract hire agreements run for a set amount of time, during which you’ll pay a monthly fee and at the end of the agreement you hand the car back.
You can’t sell a car on a PCH.
HP or Hire Purchase
Under a hire purchase (HP) agreement, you usually pay a deposit followed by a monthly amount until the debt is paid off. You don’t own the car until you’ve paid the final instalment of the finance agreement. This means that if you’re still in the payment period of the agreement when you want to sell your car you’ll need to settle the finance first. Ask the finance company for a settlement figure, pay this amount, then you’ll own the car and be able to sell it.
Again, if you’re part exchanging your car at a dealership, they will be able to handle this for you.
A personal loan does allow you to sell the car. That’s because the loan agreement is between you and the finance company or bank. The loan is not secured against the value of the car.
However, if you sell your car, you’ll still owe what remains of the loan and you’ll need to keep up repayments. You can, of course, pay off any remaining amount owed using the proceeds of the sale.
Remember: it’s illegal to sell a car with outstanding finance. However, UK regulations allow for anyone to end their finance agreement early, all you need to do is ask for a settlement figure. The finance company will then calculate what you still owe, including any early termination fees, and provide a date by which the payment needs to be made. Once this is done, you can then sell your car.
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Read all our selling guides here.
If you’re selling a car, it’s almost certain you’ll also be buying a car. If that’s a used car it’s always worth performing a background car check to be sure, not only, there’s no finance owing but also if it’s been involved in an accident and how much it’s likely to cost to run in future.