Can you sell a car on finance? 

All the details on outstanding HP or PCP debt.

It’s common to cover the cost of a new car with a hire purchase or personal contract purchase agreement. Unlike a car bought with a personal loan, a financed car isn’t yours until you make the final payment, which makes selling it before the finance contract ends more complicated. So, can you sell a car on finance? 

The good news is that it’s possible — as long as you follow the processes that lenders have put in place and you’re upfront about the finance that still needs to be cleared. 

Here, we look at the different forms of car finance and whether you’ll be able to sell your car before the end of your agreement. We’ll also take you through the steps to legally sell a car on finance and make sure the debt is cleared, including what happens if you sell a car on finance, the ins and outs of settlement notices, and selling to car dealers.

What does it mean to buy a car on finance? 

When you buy a car on finance, the finance company agrees to let you use the vehicle and be marked on the VC5 log book as the registered keeper while you continue to pay off the cost. In return, you agree to make regular repayments (plus interest) to reduce the outstanding balance you owe. 

There are three types of car finance in the UK:

  1. Leasing, where you make monthly payments for a fixed period and then give the vehicle back at the end of the contract. Leasing a car means you’ll never have the option of owning the vehicle (which also means that it will never be yours to sell). 
  1. Personal contract purchase (PCP), where you make regular payments over a fixed period (often two to four years) and then pay a final lump sum called a “balloon payment” at the end of the contract. The balloon payment either makes you the legal owner of the car or clears the finance before you return the vehicle to the lender and switch to another new car. 
  1. Hire purchase (HP), where you make higher monthly repayments that will cover the full cost of the vehicle in regular amounts over the term of the contract. An HP agreement ends when you pay the last instalment, with no additional balloon payment. This makes HP more popular with people who know they want to keep the vehicle at the end of the finance agreement, and who can afford to pay off slightly more every month. 

Is it illegal to sell a car with outstanding finance in the UK? 

Technically, it’s illegal to sell a car with outstanding finance because the car doesn’t belong to you until you’ve made the final payment. But if you pay the debt in full before the ownership of the vehicle changes, selling a car on finance is legal in the UK. 

You might have an additional fee to pay to get out of your finance agreement early — usually a certain percentage of the balance you still have to pay off. But if you follow the correct processes and don’t try to hide the fact that the car still has outstanding finance, you shouldn’t run into any problems. 

So if you’re asking, “Can I sell my car when it’s on finance?” the answer is often yes. There’s an exception for lease agreements, where the car will never legally be yours to sell, but with PCP and HP, there are clear routes to take. 

Many people choose this option if their car builds up some positive equity. This can happen if the depreciation plateaus, if the market value of your used car increases, or if you keep making repayments. You may also go this route if your needs change and your vehicle no longer works for you — for example, if you need to save money or require a larger car. 

How can you sell a car that’s on finance? 

When you sell a car you bought on finance, you must arrange to pay off the rest of your debt before the vehicle changes hands.

This means you’ll need two important pieces of information before you start looking for offers. 

  • The amount of money you still have to pay off on the vehicle. You could work this out from your own records, but you’ll be sure of the figure if you contact your finance company. You’ll also have to get in touch with them to get a “settlement letter”. This states the balance that’s due and the date when it needs to be paid. 
  • An official valuation for your vehicle, based on its market value, age and history. Remember, you might be able to increase the value of your car by getting it professionally cleaned, fixing small dings and scratches, or finding your spare keys or getting a car key replacement before you get it valued. 

Finding out these two figures is the first thing to do. Once you have them, you’ll know whether it’s possible to sell the car before the finance contract ends, because you’ll be able to see whether the amount you’ll make from the sale will pay the outstanding debt in full. It’ll also give you a good idea of your budget for your next vehicle, and show you whether you’ll have to make other arrangements to cover any shortfall yourself. 

Remember that you might have to factor in additional fees if you want to end your finance agreement early. Some lenders charge an exit fee, and PCP finance agreements can also include clauses where you’ll have to pay a fixed amount if you exceed the mileage stated in the contract. This is because additional mileage will cause more wear and tear than your lender has bargained for. 

Will a car dealer settle my finance? 

The easiest way to sell a car on finance is to go through a dealer. You can either sell the car outright to the dealer or use it as part exchange for your next car. 

The dealer will take your settlement letter and pay the remaining balance (the settlement figure) to your finance provider before the deadline to settle your finance for you. Once this is taken care of, they’ll pay you any money left over from the sale. 

Read more: What’s the best best place to sell your car?

Can I sell a car on finance privately? 

Technically, you can also sell a car privately before your finance contract is due to end. You’ll still need a settlement letter, though, and you’ll be responsible for clearing the finance before the buyer becomes the car’s legal owner.

It’s important to be upfront about the outstanding finance when you sell the car, so be sure that the buyer is aware of the arrangements. Buyers might also be wary of the legal implications of buying a car on finance, as they could become liable for the debt if it’s not cleared before the sale. 

Can I transfer finance to another person? 

Because your finance agreement is between you and your lender, it won’t usually be possible to transfer the fiance to the buyer. 

There are sometimes exceptions with some finance companies where new paperwork can be drawn up to transfer the finance to the new owner, but you’ll need to contact your lender to discuss your circumstances. 

What is voluntary termination? 

It’s sometimes possible for a private person (rather than a business) to get out of a finance agreement early when they need to sell their car. This is called “voluntary termination”, and if you’re asking yourself, “Can I give my car back to the finance company?” this is the route to take.

Voluntary termination is another option for private car owners to exit PCP or HP contracts early. Under the Consumer Credit Act, you have the legal right to terminate the contract early and give back the car to the finance company under some circumstances. 

You might be able to arrange a voluntary termination and give back the car to the finance provider if you’ve paid off at least 50% of the total amount payable. This includes the deposit, additional charges, and interest. 

For an HP contract, this normally comes about halfway through the contract, because the monthly payments are the same. In a PCP contract, you’ll probably reach this milestone later because of the larger final balloon payment. 

Selling a car with outstanding finance in the UK: A summary 

Although it’s more complicated to sell a car before you’ve cleared your finance compared to a car that you own outright, it’s both possible and legal to do so in the UK. But you have to complete a few important steps first.

It can be easier to go through this process if you do so through a dealer. As well as taking your old car as part exchange for a newer model, they’ll be able to value your car and arrange to pay the amount of the early settlement fee to your finance company. This can be much simpler than selling your car privately before you’ve completely cleared the debt. 

Whether you have a leased vehicle, a car on finance, or you own your car outright, contact Howden to talk about your car insurance

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