Can You Sell a Car on Finance?
Ellie Dyer-Brown, 3 months ago
5 min read
- Car ownership
FixMyCar discusses whether you can sell a car on finance.
It's common for new cars to be bought using a finance package, and as prices rise, it's becoming a similar story with used cars, too. According to the Finance and Leasing Association (FLA), the amount drivers borrowed to lease their cars rose by over £4 billion in 2022 compared to the previous year.
But what if you want to sell your financed car before you’ve finished paying it off? This guide outlines your financial responsibilities and discusses in which circumstances it’s possible to sell a vehicle on finance.
Contents
Selling a car with outstanding PCP finance
Selling a car with outstanding PCH finance
Selling a car with outstanding HP finance
Selling a car with an outstanding personal loan
What is voluntary termination?
Can I sell a financed car?
It's possible to sell an HP or PCP-financed car, even if there is outstanding finance. The process might seem a little complicated at first, but it's actually quite straightforward, and dealers will be able to walk you through it.
The thing you need to understand is that when you buy a car on a finance contract, you're not the legal owner - the vehicle belongs to the finance company, which means you don't have the right to sell it until the outstanding payments and administration charges are paid in full.
Most agreements ensure the buyer is in 'negative equity' for the first half of the finance contract because new cars quickly lose a lot of value. However, their depreciation slows, and payments catch up after a while, leaving the buyer in 'positive equity'.
Positive equity means that the value of your car is higher than the amount of money you'll have to pay to clear the loan agreement (the settlement figure). A settlement figure higher than the car's value puts the buyer in negative equity.
You can attempt to avoid negative equity in a few ways:
Don’t exceed the agreed annual mileage
Make some overpayments
Increase your monthly payments
Make a larger initial deposit
To sell your financed car, you’ll first need to ask the finance company for the settlement fee, which must be provided within 12 days. The figure will be valid for ten days - that’s how long you have to sell your car and pay off the remaining finance. You’ll have to get another settlement figure if you don't meet this timeframe.
You can’t sell a financed car without settling your remaining payments because you are not the legal owner. Doing so is committing fraud.
There are four financing options you need to be aware of:
Personal contract purchase (PCP)
Personal contract hire (PCH - also known as leasing, which does not allow you to sell)
Hire purchase (HP)
Personal loan (e.g. from a bank)
Learn more about how car finance works in this guide.
Selling a car with outstanding PCP finance
Buying a car using PCP finance involves paying a deposit and a series of monthly payments for an agreed timeframe, often two to four years. These payments pay off the car’s depreciation. It remains the property of the finance company throughout the contract, and even when fully paid, you still don’t own it.
You can either:
Return it to the dealer with nothing left to pay
Pay a lump sum to buy it outright
Start a new finance agreement on a different car
If your contract isn’t complete, but you want to sell the car, here’s what you need to know.
Since the company that gave you a finance agreement owns the vehicle, you don’t technically have the right to sell it. You have two options in this situation: you can find a car dealer who will settle the finance, allowing you to get out of your current car and into a new one, or you can pay the outstanding money directly by speaking to your finance company.
As mentioned earlier, you can pay a lump sum (also known as an optional final payment or ‘balloon’ payment) to buy the car outright, giving you the right to sell it. You can usually return the vehicle and terminate the contract if you’ve already paid more than 50% of the agreement. But if you’ve paid less than that, you’ll need to speak to your finance company to discuss your options.
If you intend to sell your car privately, you must agree on a settlement fee, including all remaining finance payments, interest, the balloon payment and admin charges. A dealership, on the other hand, can arrange this for you.
Selling a car with outstanding PCH finance
Personal Contract Hire (PCH) financing is more commonly called leasing. These deals are long-term rental agreements aimed at individuals who pay an initial deposit and make fixed monthly payments for an agreed period.
It’s essential to be aware that, just like with PCP financing, you can be charged extra fees at the end of the contract if you have exceeded the agreed mileage or the car is in poor condition. Prematurely ending the contract is often expensive, and you won’t be able to sell the vehicle because the leasing company owns it.
If you want to keep your car at the end of the contract, the leasing company may consider selling it to you, but they are not obligated to do so.
Remember: you cannot sell a leased car, even at the end of your agreement.
Selling a car with outstanding HP finance
Hire Purchase (HP) finance schemes allow you to pay for a car over an agreed period - for example, three years - with each monthly payment going towards the total vehicle cost.
The car is the property of the finance company throughout the agreement, but unlike with a PCP contract, there’s no final balloon payment. Monthly payments are typically higher, and at the end of the contract, you own the vehicle, meaning you have the right to sell it if you want.
However, you can only sell the vehicle once you have finished paying it off. If you want to sell it before the end of your contract, you’ll need to agree on a settlement figure, which will include the cost of your remaining payments plus interest. Alternatively, you could sell to a dealer, who will organise the settlement for you.
Selling a car with an outstanding personal loan
Buying a car with a personal loan means you own the vehicle as soon as you purchase it. You’ll have to honour the terms of the loan and pay it back as agreed, but you can sell your car at any time and use the money towards repayments.
Remember that new cars depreciate rapidly for the first few years, which could leave you in negative equity if the car’s value is less than the outstanding amount of the loan.
How to sell a financed car
There are a few steps you need to follow if you decide to sell your financed car.
1. Get a settlement letter
First, contact your finance company to let them know that you’re considering selling your car and would like a settlement letter. Most lenders should be cooperative as long as you fully repay the finance you owe, but it’s worth confirming their policy before you proceed. Some lenders will charge an extra fee for an early settlement - if this is the case, it will be laid out in your contract.
2. Get a valuation
The sale of your car needs to make enough money to pay off the outstanding finance, so you need to find out how much it’s worth. You can do this using a free online valuation tool.
3. Prepare the vehicle
After you’ve found out the value of your car, the next step is to prepare it for sale. Gather the relevant documents, including the service history, MOT certificate and V5C logbook. Having a spare key will likely contribute to a higher valuation, and it’s worth giving the car a thorough clean inside and out to ensure it looks spotless.
4. Advertise the sale and review offers
You might decide to sell your car to a private buyer or use an online service like CarWow. Whichever option you choose, you’ll need to secure a sale price that covers the remaining finance cost for the transaction to be feasible.
5. Settle the remaining finance
Once you’ve had a suitable offer, you must pay off the remaining finance before you have the right to sell the car. How you do this depends on your finance provider and contract - each is slightly different. Discussing the process with the buyer and finance company is vital to ensure everyone is on the same page.
6. Complete the sale
When the remaining finance is settled, you can officially sell the car. Complete the necessary paperwork and shake hands on the deal.
7. Receive the surplus
If you sold your car for more than the remaining finance, you’ll receive a balancing payment from the buyer after the sale.
8. Give feedback to your lender
Drivers might decide to sell mid-way through a finance deal for many reasons. However, if you’re looking to sell because you’re struggling with monthly repayments, it’s worth speaking to your finance company to discuss your situation. They often do what they can to help you manage payments or arrange an alternative repayment schedule.
What is voluntary termination?
Voluntary termination allows you to end a finance agreement early. It is a consumer protection outlined in the Consumer Credit Act of 1974. It's available to any individual who finances a car and has paid at least 50% of the total amount payable (including any fees, interest and the deposit).
If the above criteria apply to you, you can write to your finance company asking them for a voluntary termination, which allows you to give back the car and end the agreement with no further paperwork or payments. However, the company may try to charge you for extra mileage and wear and tear.
Can I part-exchange a financed car?
If you bought a car on finance but fancy changing to a newer model, you can part-exchange it. Here’s how:
Tell the finance company you want to sell.
Request a settlement figure.
Ask the company you want to get your new car from how much they will pay you for the vehicle you’re trying to part-exchange.
If their offer is higher than your outstanding balance, you’re in positive equity, and you can use this money towards the value of your new car.
On the other hand, if their offer is less than your outstanding balance, you’ll be in negative equity. You can pay off the remaining finance separately, or the company you’re financing your new car with may allow you to add the amount to your new agreement.
Frequently asked questions
Contact your finance provider to get a settlement figure.
You must settle the outstanding finance before selling the car. Before you complete your payments, you are not the car’s legal owner, so you don’t have the right to sell it.
We recommend using an online service to check whether a car has outstanding finance before buying it. Although these services aren’t free, they provide valuable information, including whether a vehicle has been written off. If you unknowingly buy a car with outstanding finance, the good news is that you may be allowed to keep it. The finance company will check whether you are an innocent party, and you’ll have to prove that you bought the vehicle in good faith. Then, the company will decide who must pay the remaining finance. Most of the time, the party responsible for paying will be the person who took out the finance agreement. However, the finance company may decide you are responsible for paying instead. You should seek legal advice or speak to the Financial Ombudsman in this situation.
No; the car is not yours to sell.
Voluntary termination will appear on your credit record. However, it will likely have less of an impact than missing multiple payments.
Looking for affordable car repairs or maintenance? FixMyCar can help you find the right garage at the right price.
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Written by Ellie
Ellie is FixMyCar's Content Writer. She has over three years of experience writing about cars and regularly collaborates with automotive experts to provide trustworthy advice for drivers in a language they understand. Her work has been featured in Yahoo! Finance, iNews, The Daily Express and The Sun. She has a BA in English literature and an MA in creative writing from Durham University. Outside of work, Ellie follows F1 and eagerly awaits Ferrari's next era of dominance in the sport. She drives a Suzuki Swift.