How can I sell a car with outstanding finance?

More and more buyers are using finance schemes to buy new and used cars, but what happens when you need to get rid of the car before you've finished paying off the full amount?

Words by: First published: 15th June 2017
More and more cars are being bought on finance these days, and that’s no surprise, given the fantastic car finance deals that are available. However, if you want to end your time with the car early – when there is still some outstanding finance on it – there are some very serious issues to consider, not least whether you can sell it…

Related: Sell your car with Auto Trader.
Can I sell a car with outstanding PCP or hire purchase finance?
In a word, no. Selling a car with outstanding finance without telling the buyer is illegal – and for one very simple reason. Until the finance is settled (ie until you reach the end of the finance term), the car is still owned by the finance company, so it’s not yours to sell.

If you do want to sell the car, you can, but you have to settle the finance agreement first. Fortunately, you have the right to end a finance agreement early at any stage; and, if you took out the finance after February 2011, you will have been given full details of both your and the lender’s rights when you started the policy.
How can I end the finance term early?
The first step is to contact the company that provides the finance – you can find their contact details on the paperwork they supplied – and ask for something called the ‘settlement figure.’ This is the sum of everything you need to pay to end the finance agreement, and may include various charges and possibly an ‘early exit fee’ on top of the basic amount you still owe. It will also detail the date – the ‘settlement date’ – by which the payment must be made.

As Adrian Dally, Head of Motor Finance at the Finance and Leasing Association (FLA), says, though: ‘Asking your lender for information does not commit you to settle in part or in full. However, once you have made the payment to settle the loan, you cannot later change your mind.’

If you don’t pay by the settlement date, you’ll have to ask for a new settlement figure. However, once you have paid off the necessary amount and settled the deal to buy the car from the finance company, then the car is yours to sell.
Do I have to do all this work myself?
Normally, yes, this would all be up to you, but it is possible that a retailer or company will arrange to pay off the outstanding finance as part of the deal to buy the car.

According to Liam Missen, from our partner, Zuto Car Finance, ‘You may have the option to sell a car with outstanding finance as part of a refinancing deal for your next car, but before you do this, it’s worth finding out if your current car finance is in ‘negative equity’.

‘To do this, you need to obtain a settlement figure from your lender and get a value for your current car [which can be done through Auto Trader’s free valuation service]. If this is lower than the settlement figure, you’re in negativity equity, so will need to weigh up if it is worth hanging on to your vehicle until later in your current finance agreement.

‘If you decide to proceed, you can then start looking for a new car and approach a lender or broker to discuss refinancing options. If approved for refinancing, your new finance deal will include the cost of the settlement figure to pay off the existing finance along with the loan amount for your new vehicle.

‘If you decide to part exchange when you upgrade your vehicle, the part exchange value will be deducted from the overall cost of your borrowing.’
Can I sell my car to pay off finance?
This might sound good in theory, but remember that you can only sell your car once you have settled the finance agreement – and you can only do that if you have access to a lump sum in the first place that will let you do so. Or, as above, you can sell your car as part of a refinancing deal.

However, the words of warning remain the same: given the charges that could be involved when ending the finance agreement early, it’s possible that the car could be worth less than the settlement figure, leaving you in negative equity. That means that, even when you sell the car, you could still be left out of pocket.

The finance company will give you full details of the costs involved in settling the finance; and, if you want to find out how much your car is worth, you can use our free valuation service.
Can I sell my car while I'm paying off a loan?
Yes, you can, because paying off a loan is a very different situation to when you’re paying off finance. With a finance deal, the deal is secured against the car, but there’s no such link with a personal loan. The car is your property from day one, and you can do what you want with it. However, remember that, even when you’ve sold the car, you still have to finish paying off the loan.
Related topics:
Selling your car