Can You Sell a Car on Finance? Explore the Options

Selling a car is often a straightforward process, but when there's outstanding finance involved, it can become a lot more complicated. Whether you're looking to upgrade, downsize, or simply need to sell quickly, understanding how to sell a car on finance is crucial. 

In this article dedicated to the topic, we will guide you through the process, explaining the legalities, options available, and steps to ensure a smooth sale. From informing your finance company to transferring ownership, we'll cover everything you need to know to navigate this potentially tricky terrain with confidence.

Can I sell a financed car?

It is possible to sell a car with outstanding finance, but it requires careful handling and communication with the lender. Initially, the process involves settling the remaining finance before or as part of the sale. 

It’s really important to understand that sellers must inform their finance company and obtain a settlement figure first. Then, generally, there are two main options; you can either pay off the loan before selling or arrange for the buyer's payment to clear the finance directly. 

Of course, it’s paramount to be upfront with potential buyers about the financial situation to avoid any legal complications during the sale. Some car dealerships also offer services to handle the settlement process for you - but this is an option you’ll need to look into first. 

Key takeaways of selling a financed car:

• Some finance agreements may have restrictions on selling the vehicle before the loan is fully paid off.
• You'll need to get permission from the finance company first and find out the settlement figure (the amount needed to pay off the loan).
• You'll need to pay off the remaining balance on the loan before or as part of the sale process.
• Inform the buyer and be transparent about the financial situation to avoid any legal issues.
• Ensure all paperwork is completed correctly to transfer ownership of the vehicle once the finance is settled.

Who legally owns a car on finance?

The legal ownership of a car on finance typically depends on the type of finance agreement. For example, if you've taken out a personal loan to buy a car, you are the legal owner from the start; the loan is separate from the car ownership.

However, with a Personal Contract Purchase (PCP), Hire Purchase (HP), or Lease Purchase (LP) agreement, it is the finance company that legally owns the vehicle until the final payment is made. The person making the payments is the registered keeper, but not the legal owner.

If you have a Personal Contract Hire (PCH) agreement, then the leasing company owns the car throughout, as you are essentially renting it long-term and will never actually own the vehicle.

It's important to understand that being the registered keeper (the person responsible for the vehicle's day-to-day use, maintenance, and legal obligations) is different from being the legal owner. 

How do I know if my car is in positive or negative equity?

Before you decide to sell a car on finance, you will need to know if the vehicle is in positive or negative equity: 

• Positive equity is if your car's value is higher than the remaining finance balance. 
• Negative equity is if you owe more on the finance than the car is worth.

To do this you’ll have to contact your finance company (lender) or check your latest statement to find out how much you still owe on the car. Next, determine your car's current market value by using online valuation tools and compare the two figures.

For example, if you owe £8,000 on finance and your car is worth £10,000, you have £2,000 in positive equity. But, if you owe £12,000 to the finance company but your car is only worth £10,000, you have £2,000 in negative equity.

How much is my car worth? How to get a settlement figure for your car:

If your car is financed, determining its worth before the contract ends will give you an idea if the vehicle is in positive or negative equity. Online valuation tools are the best way to get an estimate, or you can check the listings of similar cars for sale (make sure these are the same make, model, year, and condition). 

You’ll also need to consider factors such as mileage, service history, and any modifications made to the car - each of which can have an impact on the value of your vehicle. Car dealerships like ourselves here at Wilsons Epsom offer free online valuations for a fair and competitive quote to buy your car.  

To obtain a settlement figure, contact your finance company directly who will be able to provide this within a few days. Settlement figures are usually only valid for a limited time and can differ from your outstanding balance due to interest rates and potential early repayment fees.

What is voluntary termination?

Voluntary termination is a legal right provided to consumers. In the UK, this falls under the Consumer Credit Act 1974 and allows you to end a car finance agreement early under certain conditions: 

• This applies to Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements.
• You can legally terminate the agreement once you've paid at least 50% of the total amount payable, including any interest and fees.
• If you haven't reached the 50% mark, you can still terminate by paying the difference to reach 50%.
• You must return the car in reasonable condition, allowing for normal wear and tear.
• Once terminated, you are not required to make any more payments.
• The finance company can charge for damage beyond normal wear and tear. 
• It shouldn't negatively affect your credit score, as it's a legal right.

How to sell a car on finance: A step-by-step guide

Selling a car with outstanding finance can seem daunting, but with the right approach, it's a manageable process as we highlight with this 10-step guide:

Step 1 - Check your finance agreement

Review your contract for any restrictions on selling the vehicle while you still owe the lender money.

Step 2 - Contact your finance company

Inform them of your intention to sell and request a settlement figure for the remaining amount owed on the car.

Step 3 - Determine your car's value

Use online valuation tools or an authorised dealership to get a professional appraisal of your car’s worth.

Step 4 - Compare both figures

Determine if you're in positive or negative equity by comparing the current market value of your vehicle against the remaining balance.

Step 5 - Decide on a selling method

This could be a private sale, part-exchanging at a dealership, or using a car-buying service. Ensure you are transparent about the outstanding finance.

Step 6 - Agree on a price

Once you’ve found a buyer or accepted an offer from a dealership/car-buying company, make sure the price covers the settlement figure.

Step 7 - Arrange the settlement

If your car is in positive equity, the buyer pays you meaning you can settle the outstanding finance before transferring ownership. If your car is in negative equity, you’ll need to cover the shortfall before completing the sale.

Step 8 - Complete the payment

Pay off the finance company with the buyer's funds or your own money.

Step 9 - Obtain proof of settlement

Get written confirmation that the finance has been cleared and share it with the buyer.

Step 10 - Transfer ownership

Complete the necessary paperwork to transfer ownership to the new buyer.

What is the best way to sell a financed car?

The best way to sell a financed car can depend on your personal circumstances, but generally, settling the finance before selling is the most straightforward method. This approach gives you full control over the sale and simplifies the process for buyers, potentially leading to a quicker sale and better price. 

However, if settling the finance upfront isn't feasible, selling through a reputable dealership can be an excellent alternative. Car dealerships like us are typically experienced in handling financed vehicles, can manage the paperwork, and often offer a convenient part-exchange option if you're looking to buy another car. 

FAQs and Answers

We hope our comprehensive guide to selling a car on finance has provided you with all the answers you need. Should you have any other questions, please refer to our FAQ section below, or get in touch and we’ll be happy to help: 

Can I give my car back to the finance company?

Yes, you can give your car back to the finance company in certain circumstances: Voluntary Termination is allowed if you've paid at least 50% of the total amount payable on a Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement, without having a negative impact on your credit score. If you haven't reached 50% of payments, you can still return the car, but it's treated differently. This is known as Voluntary Surrender and will likely have a more significant negative impact on your credit score. Handing your car back to the lender part-way through your contract is generally considered a last resort when all other options have been exhausted. Always consult with your finance company first before making this decision.

Is it illegal to sell a car with finance outstanding?

While it is not totally illegal to sell a car with outstanding finance, there are important legal considerations to keep in mind. The finance company typically owns the car until the loan is fully repaid, so selling a car you don't legally own without the finance company's permission can be considered fraud. You are legally required to inform potential buyers about the outstanding finance owed on a vehicle in your care.

Can I get a car on finance if I already have one?

Yes, it is possible to get a car on finance even if you already have one. However, there are several factors to consider that could hinder your chances of having two cars on finance. Bear in mind that lenders will review your credit report, including existing debts which includes any outstanding finance you already owe on your current vehicle. Your income must be sufficient to cover both finance agreements and you must check if your existing finance agreement has any restrictions on additional borrowing. Additionally, a larger deposit might be required to offset the risk of multiple car loans and interest rates may be higher when applying for a second car finance agreement.

Can I trade my car in with outstanding finance?

Yes, you can trade in a car with outstanding finance and this is actually a common process among motorists. Typically, the dealership will assess your car's value and you’ll need to have informed the finance company who will provide you with an up-to-date settlement figure. From this, the dealer will determine if you have positive or negative equity by comparing the car's value to the outstanding finance. If you have positive equity, the dealer will pay off your finance and put any remaining value towards your new car. However, if you have negative equity, you will need to pay the difference, or it might be rolled into the finance agreement for your new car (though this isn't always advisable).

Can someone take over my car finance?

While it's technically possible for someone to take over your car finance, it's not a straightforward process. As such, most finance companies don't allow the transfer of finance agreements to another person - this is because transferring a finance agreement involves changing the legal owner of the debt, which is complex. If a lender does consider it, they would treat it like a new application, conducting full credit checks on the new applicant. As an alternative option, the new person could take out a another finance agreement to buy out your existing one, or you could sell the car and the new buyer could apply for their own finance.

Can I scrap a car on finance?

Scrapping a car that's still on finance is possible, but the process can be messy. Firstly, you must inform the finance company about your intention to scrap the vehicle as you’ll be required to settle the outstanding finance before scrapping the car. In most cases, scrapping a car on finance is not advisable. 

Finance a new or used car

At Wilsons Epsom, we understand that finding the right car finance solution is just as important as choosing the perfect vehicle. That's why we offer a comprehensive range of flexible finance options for both new and used cars, tailored to suit your individual needs and budget. 

Our experienced finance team is dedicated to helping you navigate the process with ease, whether you're looking for a Personal Contract Purchase (PCP), Hire Purchase (HP), Personal Contract Hire (PCH), or even a Business Contract Hire (BCH). We work with a variety of trusted lenders to secure competitive rates and terms, ensuring you get the best possible deal. 

From sleek city runabouts to spacious family SUVs, our diverse range of new and used vehicles means you're sure to find your ideal match. Visit our Surrey showroom today and let us help you get on the road with confidence and peace of mind.