Selling a financed car

Can I sell my financed car?

Selling a car that you’re still making finance repayments for isn’t easy – and isn’t always possible. After all, using car finance to purchase a vehicle means that you don’t technically own the vehicle until the finance is settled. Find out all the rules and regulations around selling a car with outstanding finance.

How to sell a financed car

To sell a car on finance, you need to:

· Check your contract. it may have a clause called ‘voluntary termination’. If you have paid at least 50% of the total cost of the loan, you can hand back the car without any additional payments.

· If the contract doesn’t offer this as an option, you should contact the lender and ask for a car finance settlement figure.

· You’ll need to pay your settlement sum before handing the keys to someone else. It’s likely you may also have an early repayment charge and administration fees to pay. This can make it expensive to sell a car that’s still on finance.

· Once you’ve got your settlement figure and an accurate valuation of your vehicle, you’ll need to make sure you’re not in negative equity (take a look at our guide for more information on negative equity car finance).

Part-exchanging a financed car

Rather than selling a car with outstanding finance, you might want to consider part-exchange. This is when you trade in your current model and put the proceeds towards another. Part-exchanging a car on finance can be more convenient than selling privately and buying from a separate party.

The difference between selling on PCP and HP

Whether you can sell a financed car largely depends on the loan agreement you have in place, specifically whether you’re making hire purchase or PCP repayments.

Can you sell a car on hire purchase?

HP car finance is a type of loan which allows you to buy a vehicle without the need to pay the full value up front. Typically, you’ll pay a deposit and then make repayments each month. It’s a very popular way to get the latest vehicle on the market, or upgrade to a newer model.

To sell a vehicle on hire purchase, you’ll need to end your HP agreement early by contacting the finance company. Once you receive your settlement figure you will have a set period of time to pay it off.

In some cases, if you’ve paid off less than half of the agreement’s total cost, you can return the car, but you’ll need to make a lump sum payment to bring the value to 50%. If you have paid over the 50%, you will be able to return the vehicle.

Selling a car on PCP

You can’t sell your vehicle if you have it on PCP finance, as you don’t own the vehicle yet. Under the Consumer Credit Act 1974, however, you can return the car under the voluntary termination clause if you’ve paid 50% of the total amount payable (including interest). Alternatively, you can pay off the remaining balance of the loan and keep the car to sell on.

Can you sell a car bought with a personal loan?

Yes, you can sell a car if it has been bought with a personal loan, as you technically own the whole car and no agreement has been placed against the vehicle. However, if you used a loan to pay for the vehicle, you will still need to make the monthly loan repayments, even if you sell the vehicle.

If you want to sell a vehicle that you bought using a personal loan, you can use the amount you sell the car for to pay off some or all of the remaining loan balance. If you repay the loan early, be sure to check whether you’ll be liable to pay an early repayment charge.

If you choose to use the money you make from selling your current vehicle to by a new car, you’ll still be responsible for paying the loan each month.

What are the risks of selling a car with outstanding finance?

Improved models boasting new features hit the market every year, so wanting to upgrade your current vehicle is normal. However, there are some risks that come with selling a car with outstanding finance.

· You need to make sure the balance has been closed before selling a financed car. If you sell your car before checking that the finance has been settled, you could be committing fraud. Check with the finance company that all debt has been settled before selling.

· You may have fees to pay if you settle the contract early.

· A car’s value will depreciate quickly first, then ease off, but monthly payments will be based on an average. Because the value of the car can change, you could end up in negative equity, where the amount you still need to pay off is more than the car is worth.

Can you swap finance from one car to another?

You can trade your vehicle in for a new model even if your existing car is on finance, but the finance on the previous vehicle must first be settled. You will need to contact your finance provider and ask for the settlement figure. Zuto can provide assistance if you want to change your car with outstanding finance.

What to do if you have a car on finance and can’t afford it

Car finance plans can sometimes span over five years, and it’s not unusual for personal and financial circumstances to change a lot in that time. If you find yourself unable to afford finance repayments, you should get in contact with your lender directly.

Remember that if you have HP or PCP, you can get voluntary termination if you’ve paid off half of the total balance. Missing payments can have a serious effect on your credit score, though, so if you are struggling, seek further help and advice.

Selling a financed car – FAQs

We’ve answered the most common questions asked by drivers around selling a car with outstanding finance.

I have a car on finance and can't afford it, what can I do?

You should speak to your finance provider if you won’t be able to make your payments. There are certain circumstances where the agreement can be terminated, so don’t delay contacting the lender directly.

What happens if I don't pay my car finance in the UK?

If you don’t pay your car finance, or any loans, you will fall into arrears and the lender can repossess the car. This will affect your credit rating and hinder your chances of being offered credit in the future.

Is cancelling car finance within 14 days allowed?

Yes, under the Consumer Credit Act, you have 14 days to withdraw from any credit agreement, whether you applied online, on the phone or in person.

What happens if my car is written off and it's on finance?

If you have accepted the car is a write-off, you will be offered a settlement price. Your insurance company may pay you for the vehicle, and this may cover the amount you borrowed - but sometimes it may not.

If it doesn’t cover the amount you owe, you will need to pay the remaining balance. For example, if you have a car on finance for £6,000, have paid £1,000, and the insurance company offer you £3,000 – you’ll need to find the remaining £2,000 owed on the car.