Selling a car with outstanding finance: the UK guide

Most new and nearly-new cars in the UK are bought on finance, so sooner or later many drivers want to sell a car that is not fully paid off. It is entirely possible, but there is a correct order of doing things. Here is how it works, what it costs and the simplest routes.

The key rule: the finance company owns the car

On both PCP (Personal Contract Purchase) and HP (Hire Purchase), the lender remains the legal owner until you make the final payment. You are the registered keeper on the V5C logbook, but the keeper is not necessarily the owner. That means you cannot pass ownership to a buyer until the agreement is settled.

Selling a car with finance still attached, without telling the buyer or clearing it, is a serious matter. A private buyer who acts in good faith is generally protected by law, and the lender will pursue the seller for the money. Every reputable dealer and buyer runs a finance check, so it will be found anyway.

Personal loans are different. If you paid for the car with an unsecured bank loan, you own the car outright and can sell it freely. You simply keep repaying the loan.

Step 1: get your settlement figure

Contact your lender (most have an online account or app) and ask for a settlement figure. This is the amount needed to clear the agreement today. It is usually lower than the total of your remaining monthly payments, because future interest is removed. The quote typically stays valid for between 7 and 28 days.

Step 2: find out what the car is worth

Compare the settlement figure with a realistic value. Check the private sale, part-exchange and instant-buy figures, because they can differ by 15 to 25 percent. A free moValue valuation shows all three side by side.

• Positive equity: the car is worth more than you owe. Once the finance is cleared, the difference is yours.
• Negative equity: the car is worth less than you owe. You need to cover the gap from your own funds, or choose one of the alternatives below.

Step 3: choose how to sell

Sell to a dealer or instant buyer (easiest)

Most franchised dealers and the large online buyers will settle your finance directly with the lender and pay you any balance. You do not need the cash up front. Mention the finance at the start so the offer and paperwork reflect it.

Part-exchange

The dealer settles your existing agreement and puts any positive equity towards your next car as a deposit. If you are in negative equity, some dealers will add the shortfall to your new agreement. That keeps things simple, but you are borrowing the gap again and paying interest on it.

Private sale

Usually the highest price, but the most admin. The cleanest approach is to settle the finance yourself first, then sell. If you cannot, arrange for the buyer to pay the lender the settlement amount directly and pay you the remainder, with the lender confirming the account is closed before handing over the keys. Many private buyers are understandably wary of this, so expect fewer interested people.

PCP: hand it back at the end

At the end of a PCP you can return the car instead of paying the balloon payment (the Guaranteed Minimum Future Value). That is worth comparing with selling: if the car is worth more than the balloon, selling it, settling and keeping the difference is often better.

Voluntary termination: the right many drivers miss

Under the Consumer Credit Act 1974, if you have a regulated HP or PCP agreement and have paid at least half of the total amount payable (including interest and fees), you can usually hand the car back and walk away with nothing more to pay, as long as it has been reasonably looked after and is within any agreed mileage. If you have paid less than half, you can top up to the 50 percent point and then hand it back.

This can be a lifeline if you are deep in negative equity. Check your agreement and ask your lender for the exact figure, as the rules apply to regulated agreements only.

A quick checklist

• Request an up-to-date settlement figure in writing.
• Get private, part-exchange and instant-buy values before deciding.
• Always tell buyers and dealers the car is on finance.
• Keep written confirmation from the lender that the agreement is closed.
• Notify the DVLA of the change of keeper online once the sale completes.
• Cancel or transfer your insurance. Any unused road tax is refunded automatically once the DVLA knows you have sold the car.

Frequently asked questions