Selling a Car that is on Finance

By CarMoney April 28, 2021
Selling a Car that is on Finance

We all know how quickly circumstances can change. And a finance payment of a few hundred pounds a month or more can seem like a massive burden when it was affordable when you started. If you have taken out a PCP or HP deal, the length of the deal can sometimes be up to 5 years of repayments (depending on the deal of course). If you are looking to sell your car with time and repayments left on your deal, there may be a problem.

Can I sell my car with outstanding Hire Purchase (HP) finance?

In short, no you cannot. As the car is legally still the possession of the finance company until the end of the agreement, or unless you end the agreement early by paying off what you still owe. If you’ve paid off less than half of the agreement’s total cost, you can return the car. But in order to do this, you’ll have to repay the remaining installments to bring you up to half of the car’s value.

If you are more than halfway through your repayments then you will not be able to return the car. If you wanted to get out of your car finance agreement, you would need to pay a settlement figure set by your lender. 

Can I sell my car with outstanding Personal Contract Purchase (PCP)?

Again, you are not allowed to sell the car while you still have debt outstanding. You’re not the car’s legal owner until you’ve repaid the PCP agreement or the settlement figure in full.

The first option is to return the car if you’ve paid off half the finance agreement. If you haven’t, you’ll have to pay up the difference towards it. Remember you have to have paid 50% of the total amount payable, which includes fees and interest, not just the amount borrowed. 

The second option is to pay off the agreement early and keep the car. This may be worth doing if the settlement figure is less than the cost of carrying on with your monthly payments. You can only sell it once the agreement figure has been settled.

What is Voluntary Termination of car finance?

Your contract may have a clause called ‘voluntary termination’. This means you can hand the car back and not make any additional payments, as long as you’ve paid at least 50% of the total cost. Voluntary termination shouldn’t affect your credit rating, so long as you have kept up repayments. 

Is it worth paying off car finance early?

Well, this all depends on the type of deal that you have and how long is left on your contract, and how much you still need to pay. If the settlement figure from the lender is lower than the total amount still due, then it is a no-brainer (if you can afford it).

If you wish to sell the car, you’ll first need to write to the finance company to provide you with a settlement figure. When paying off early you don’t normally have to pay the interest, but you will likely have to pay an early exit fee. 

Can I trade-in/part-exchange my car that’s on finance?

A common question we get asked! The answer to this question is yes and it doesn’t matter whether you have a car on Hire Purchase (HP) or Personal Contract Purchase (PCP), the process is simple. There are a few steps you will need to take in order to do this:

Get a settlement figure from your current lender.
Find out the value of your car with any valuation tool. All you will need is your registration.
Next, time for a tiny bit of maths, subtract the settlement figure from your car’s valuation price. This will equal the amount of equity available in your car. If you have a positive figure, great news! You can use this amount of money as a part exchange for your next car. However, if the figure is negative, you’ll need to pay that amount of money on top of your new car’s price. 

Can car finance be transferred to another person?

Unfortunately, as every finance deal is individually tailored to each person, it is not possible to transfer a finance agreement to someone else. This doesn’t mean you don’t have options to swap the vehicle. Depending on your agreement, you may be able to use your existing car as a deposit on a new, cheaper car. 

What should I do if I want to change my deal?

Before deciding anything, you should consider a few things:

  1. What can you afford to pay each month?
  2. How much are you currently paying each month?
  3. How much do you still owe on your current deal?
  4. What car would you like to switch to and how much is it? 

What happens if I sell a car with outstanding finance?

The law states that it is illegal to knowingly sell/scrap a car that has outstanding finance on it. This does not mean you will likely go to prison if you do, it is a civil affair and the finance company could decide to sue for the outstanding balance. You will likely have to pay back the value of the car plus a hefty fine. Plus, any legal costs incurred by the finance company. 

Most buyers will do an HPI check to make sure the car is legal in every aspect. This stands for Hire Purchase Investigation and is a basic vehicle history check. It makes sure that the vehicle isn’t financed elsewhere. 

Can I cancel my car finance?

The good news is that it is possible to terminate your contract early with the most popular forms of car finance, but there are rules about when and how you do it. If you can no longer afford to keep up repayments, it is very important that you contact your lender and let them know of your situation. 

You must have already repaid 50% of the balance due, which includes interest and any other charges. If you have, you can cancel the contract and return the car. This is called voluntary termination and is a legally binding initiative under the Consumer Credit Act 1974. If you haven’t yet paid off 50% of the money you owe on the car but still want to cancel the contract, you can make additional payments to bring you up to the halfway point. You won’t be able to terminate the contract until you have, though.

If you’re leasing a car on personal contract hire (PCH), it’s more complicated and expensive if you want to cancel the contract early. You can do it, but you’ll probably have to pay back the full amount of the remaining lease costs. For example, if you wanted to cancel your lease contract but still had a year remaining, you would have to pay a year’s worth of monthly fees upfront in order to do so. 

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