How to Sell a Car With Outstanding Finance

Can you sell a car that still has finance on it?

You can, and plenty of people do every week. The catch is doing it in the right order. On hire purchase, PCP or conditional sale, the car isn't yours yet. The finance company owns it until the last payment lands, so the debt gets cleared before the car changes hands.

Citizens Advice puts it bluntly. "While you are still making payments, you aren't allowed to sell or dispose of the goods without the lender's permission. If you do, you'll be committing a criminal offence."

That sounds harsher than it feels in practice. Sorting it out is routine.

This guide is part of our wider advice on selling your car.

Which agreements actually stop you

An unsecured personal loan is the odd one out. The money was lent to you, not against the car, so the car was yours from day one.

Being the registered keeper doesn't make you the owner either. Our guide to outstanding finance covers that split from a buyer's point of view.

Step one: ask for a settlement figure

A settlement figure is the single amount that closes the agreement today. Get it before you advertise the car or agree a price with anyone.

You have a legal right to that number. Under section 97 of the Consumer Credit Act 1974, your lender must give you a statement of the payment needed to discharge the debt. It has to show how the amount was arrived at, not just the total.

Most lenders are far quicker, often instantly in an app. The deadline is there for the one that drags its feet.

Why the figure is higher than you expected

You can settle early whenever you want. Section 94 gives you that right, on notice and payment of everything payable, less any rebate allowed under section 95.

That rebate is where people get caught out on the maths. It has a legal floor, set by the Consumer Credit (Early Settlement) Regulations 2004. Your lender can be more generous than that formula, but never less. Two parts of the calculation push your figure up.

First, once you give notice, the rebate is worked out to a date 28 days later (regulation 5). Second, where the credit runs more than a year past the start, the lender may defer that date by a further month (regulation 6). Where a month would be more or less than 30 days, it can elect to use 30 days instead.

So you carry a bit more interest than the raw sums suggest. That's built into the law, rather than a penalty someone invented.

The four ways to clear the finance

Four routes out. Which one suits you comes down to whether you have the cash to settle up front.

Settle it yourself, then sell

Pay the settlement figure, get written confirmation the agreement is closed, then sell the car as your own. This is the cleanest version, because the buyer is buying a car with nothing hanging over it.

Part-exchange it

The dealer takes the settlement figure, pays the lender direct, and puts anything left over towards your next car. It's the least hassle of the four. The dealer's margin comes out of your price, though our guide to part-exchange vs private sale found that gap is smaller than the internet claims.

Sell to an online buying service

These settle with your lender direct and send you the balance. They handle most of the paperwork. They're buying to resell, so price that in.

Sell privately with the buyer settling

Your buyer pays the settlement figure straight to the finance company, and the rest to you. Agree it with the lender before you agree it with the buyer. Our guide to selling privately covers doing the sale itself safely.

What if you owe more than the car is worth?

That's negative equity. Your settlement figure is higher than anyone will pay for the car, so selling leaves a shortfall you have to find.

Work out the size of it first. Settlement figure, minus a realistic sale price, is your number.

Then you have four moves, and none of them is painless:

• Pay the shortfall in cash and sell the car.
• Roll it into a new agreement. Some dealers offer this. You're borrowing the old debt again on top of the new car, so it costs you more over the term.
• Keep the car and keep paying. The gap closes as the balance drops.
• End the agreement early and hand the car back, covered next.

You'll see percentages quoted online for how common negative equity is. Ignore them. Nobody publishes a reliable figure for it, so work from your own settlement letter and an honest valuation.

Voluntary termination: handing it back instead

Voluntary termination isn't a sale. You give the car back, you get nothing for it, and the agreement ends there. For some people in negative equity, it's still the cheapest way out.

Section 99 of the Consumer Credit Act 1974 says you're entitled to terminate a regulated hire purchase or conditional sale agreement by giving notice. You can do that at any time before the final payment falls due. The FCA calls PCP a form of hire purchase, so a PCP is covered too.

The half rule, the right way round

Plenty of guides get this backwards. They say you must already have paid half the total price before you're allowed to terminate. You don't.

Section 100 sets your liability, not your entry ticket. You owe the amount by which one-half of the total price exceeds the sums you've paid and the sums already due. So if you're short of half, you top up to it. Where the agreement provides for a smaller payment, or for none, that applies instead.

Citizens Advice is blunt about the myth. "Lenders sometimes say you must pay the whole amount owed under the agreement before you can end it. This is wrong."

Two things still cost you. Arrears that built up before you terminate don't vanish (section 99). And if you've broken your obligation to take reasonable care of the car, the lender can add what it costs to put that right (section 100(4)).

Already paid more than half? You won't get a refund, and Citizens Advice says you usually won't owe any more either.

Your own agreement has to spell all this out. The Consumer Credit (Agreements) Regulations 2010 require it to explain how and when you can terminate under section 99, plus your maximum liability under section 100. Go and read yours.

One exception. Section 99 covers hire purchase and conditional sale, so a lease doesn't work this way. On personal contract hire the car was never going to be yours, and your exit terms normally come from the contract you signed.

What happens if you sell it anyway

Some sellers assume the problem sorts itself out. It doesn't.

A private buyer who buys in good faith, knowing nothing about the finance, can end up owning the car outright. That comes from Part III of the Hire Purchase Act 1964. Our outstanding finance guide sets out the test from the buyer's side.

Sellers read that and relax. That's the mistake. Section 27(6) says nothing in the section exonerates the debtor "from any liability (whether criminal or civil) to which he would be subject apart from this section".

Put plainly: your buyer may well keep the car, and you still owe the lender every penny. The protection is theirs, not yours.

Selling to a dealer goes worse for everybody. A trade or finance purchaser gets no protection at all. Section 29(2) defines that as anyone whose business consists, wholly or partly, of buying vehicles to sell on. It also covers financing them by buying them to hire out.

So the finance company can still recover the car from the dealer. The dealer can then come to you for what they paid.

I'd get the settlement figure before I so much as photographed the car. It usually takes minutes. It's the difference between an ordinary sale and a criminal one.

Check your own car before you advertise it

Run a check on your own registration first. Sellers turn up markers they knew nothing about, left there by a previous keeper. Outstanding finance is one of them. A write-off marker or a mileage discrepancy are others.

None of that is your fault. It still stops a sale dead on the driveway if a buyer finds it and you can't explain it.

A Comprehensive check shows you what a buyer's check will show them, and the sample report shows the format. A report reflects the car at the moment you run it and never updates, so run a fresh one if the sale takes weeks.

The paperwork, in the right order

Order matters here more than the documents do.

1. Get the settlement figure in writing.
2. Clear it, or agree in writing exactly how the buyer or dealer will.
3. Get written confirmation from the lender that the agreement is closed.
4. Hand over the car and the V5C, and tell DVLA you're no longer the keeper.

Don't let step 4 happen before step 3. Once the car has gone, so has your leverage.

Telling DVLA is the one legal duty on that list. Do it online or by post, and your road tax is cancelled with a refund for any full months left on it (gov.uk). Our guide to the paperwork when selling covers the rest of the documents.

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