When you purchase a car on finance, the name on the contract is yours, but you won’t own the vehicle until you’ve paid it in full.
Selling a car, you don’t yet own can be a bit challenging (and sometimes illegal).
In this article, we’ll explain how to sell a financed car, when you can legally sell it, and what to keep your eye on when selling a car with outstanding finance.
Let’s dive in.
Technically, you can’t sell a financed car that you haven’t repaid because you don’t yet own it.
You can only sell your car once you’ve made all of your monthly payments and the balloon payment (if you have a PCP) or the purchase fee (if you have an HP agreement).
That said, selling a car on finance is possible, but you’ll need to jump over a few hurdles.
You’ll need to consult with your finance company since they’re still the legal owner of the vehicle and notify the buyer that the car you’re selling is on finance.
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It is illegal to sell a car with outstanding finance without telling the buyer you still owe money to it. If you don’t, you will be committing fraud.
Your finance provider can take you to court for breaking the terms of your contract and/or failing to settle your debt and fees.
The buyer will be affected too. Your finance provider may repossess their vehicle, though they might be able to keep it if they have a good title.
If possible, the best way to sell a car on finance is to pay what you owe. You’ll have to inform your finance provider that you want to pay your debt earlier, and they will give you a settlement figure based on the car’s value.
Once you’re the legal owner of the vehicle, you’ll have a clear title that you can transfer to the buyer, which will make it much easier to sell the car.
If you can’t afford to pay the settlement figure or you’re in a situation where you can’t end the agreement early, whether and how you can sell the car depends on the type of finance agreement you have.
A Hire Purchase (HP) is a form of car finance where you pay a deposit and monthly instalment before you own the vehicle.
Since you’re not the legal owner of the vehicle until you’ve made all of your repayments, you won’t be able to sell the car– unless you pay its full price.
Your finance provider might allow you to pay the full cost early, in which case you probably won’t have to pay any interest, but you’ll be charged an early repayment fee:
In most cases, if you pay less than £8,000, you could skip the early repayment fee, but you’ll have to pay the interest.
Similar to an HP agreement, having a PCP contract (which is more like a long-term rental) means that you’re not the legal owner of the vehicle, and as such, you can’t sell the car.
The only way to sell the car would be to pay off the agreement and the balloon payment on the PCP (also called an ‘optional payment.’)
After you pay the settlement figure in full, you can then claim ownership and sell the vehicle on your own terms.
Alternatively, you can trade in your PCP car to another dealer.
There are two ways to end an HP and a PCP finance agreement early.
Depending on how much you’ve paid, you can put an end to your contract either through voluntary termination or early settlement.
If you have paid more than 50% of the total amount of your finance agreement when you choose to return the car, you can effectively end the contract without having to make any additional payments. If you haven’t, you can make a one-off payment to reach 50% and return the car.
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A PCH contract is essentially a leasing agreement. Unlike with HP and PCP finance, where you can take ownership of the car at the end of the contract, you don’t have that option with a Personal Contract Hire, and you must return the vehicle to the finance company.
That said, you can ask the company to give you a price and offer to buy the vehicle when the agreement ends. If they allow you to purchase the vehicle, you could sell it when you officially become its legal owner.
It is frequently more challenging to end a PCH agreement than a PCP or HP arrangement.
Even if you return the vehicle early, you may still be required to pay the remaining balance.
Depending on the specifics of your contract, you might be eligible for ‘early termination’ of the deal. This typically requires paying a substantial percentage of the remaining financing amount.
If you can’t afford your PCH payments, you could prolong your agreement to lower the amount you pay every month. You will need to contact your financing provider to discuss your situation and see whether they will offer you an alternative.
Selling a car with outstanding finance is legal if you’ve bought it with a personal loan as you are the vehicle’s legal owner.
In this case, the loan is tied to the borrower’s name and not the car, so you won’t have any legal issues to worry about– apart from paying back the rest of your loan (which you can do with the money from the sale).
You can sell a financed car to a dealer or a trader with or without paying the settlement figure by trading in your loan.
When you trade in a vehicle on finance, the dealer takes over the loan and pays it off on your behalf. They also typically do most of the legwork.
If the sale price is greater than this amount, your dealer will pay it.
If the car is worth less than the settlement figure, that means you have negative equity, and you’ll need to pay the difference. Many dealers will also offer to roll the difference into your new loan.
The downside is you’ll often get less for the car than if you were to sell it to a private buyer.
If you want to trade in your car on finance for a better model, you can part-exchange it at a dealership.
Part-exchanging a vehicle is one of the easiest ways to sell a car and get a new one, but you’ll first have to become the legal owner of the vehicle.
There are many reasons why you might consider selling your car while on finance, but it’s not always the best option.
Regardless of what finance agreement you’re on, you’ll need to pay a settlement figure before you could legally sell the car. Selling a vehicle on finance without notifying your finance provider and buyer is illegal and could get you into trouble.
The easiest way to decide whether selling your car with finance is a good idea is to check whether the settlement figure is larger than the car’s value.
If the car is worth more than the settlement figure, it may be worth moving forward with your plan to sell.
If selling a car with finance is not an option, then you can:
If you’re wondering whether and how to sell a financed car, the short answer is you’ll have to pay off your finance agreement first or trade it in at a dealership. Selling a car on finance without the consent of the finance provider or the buyer’s knowledge is illegal and could get you into trouble.
My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.