Should I buy a car with outstanding finance?

Car finance allows drivers to borrow money and pay it back in instalments, rather than paying for their car in cash up front.
If you have payments left to make, the car is said to have ‘outstanding finance’. In HP or PCP agreements, the finance company is owner of the car. So, its’ illegal for the vehicle’s keeper to knowingly sell the car without the owner’s permission. The keeper must pay off their contract and pay any option to purchase fee before they can sell it. So what do you do if you need to sell a car, or if you want to buy one that is still being paid for with a finance plan? We’ll cover your options here, but please note this does not constitute financial advice. If you’re struggling to make repayments or want to sell a car you’re paying on finance, speak to your lender and consult Money Helper and Citizen's Advice for free, impartial advice.

Outstanding finance is the amount of money still owed on a vehicle being purchased in instalments (usually through PCP or HP contracts).
If you owe payments, then you aren’t classed as the car’s legal owner and so can’t sell it.

Until all outstanding finance is paid off, the vehicle’s ‘owner’ is the finance company or lender. The vehicle will be registered to them with the DVLA.
The person paying for it is called the vehicle’s ‘keeper’. They’re typically the person who drives the car and has it in their possession. You can’t sell the car if you’re just the keeper or driver. When you settle your debt and pay any option to purchase fee, the car will be registered to you and you’ll become the legal owner.

To check how much money is left to pay on the car you drive, you’ll have to get in touch with the lender. Their contact details will be available on the contract you signed.

It is illegal to knowingly sell a car with outstanding finance and not:
a) inform the buyer about the outstanding finance b) settle the outstanding finance before ownership is transferred, or c) Get the owner’s permission (the finance company) If you’ve settled the finance, you should be ok to sell – just double check with the lender.

If your situation changes and you need to sell the vehicle before you’ve finished paying it off, you’ll need to talk to the finance lender about your options.
To start, you’ll need to find out how much money is left to pay and get permission. You may have two options: voluntary termination or selling it to an approved dealership or car buyer. You will not be able to privately sell the car without permission.

Some dealerships and car buying businesses may agree to buy the car and pay off the remaining finance, if you tell them how much money you still owe on the car.
You’ll need to speak to the finance company to advise them you would like to sell the car and request a settlement figure from them. This will only be an option if your finance has an option to own the car – for example, PCP or HP. If you’re leasing the car, or paying for it through contract hire, you’re only borrowing the car so you can’t sell it. If you’re not sure what type of finance agreement you have, check your documents and ask the provider. You can look in the terms and conditions for your “right to purchase”.

You have a legal right to voluntarily terminate a HP or PCP finance agreement if you have paid half the ‘total amount payable’. The amount owed (also called total liability) includes the balloon payment in the case of PCP finance and any other charges, fees or any arrears, not just the monthly payment.
You will need to speak to the finance company and check the terms and conditions to find out how much you have to pay, and when you have to pay it. If you haven’t yet paid the required 50% of the total amount payable, you will need to make up the difference to go ahead with a Voluntary Termination. Bear in mind if there are any repairs required that fall outside of ‘fair wear and tear’ you will need to ensure these are made before returning the vehicle. Once the car is returned to the finance provider and any outstanding payment has been settled, the finance provider will terminate your finance agreement. If you are struggling to make payments for your car finance you should contact the finance company in the first instance to discuss your options You may also wish to seek independent guidance from an organisation such as Money Helper.

If you know the car has outstanding finance, walk away.
If you buy a car with outstanding finance and become the registered keeper, it may be your responsibility to pay off the remaining balance – on top of what you’ve already paid for the car. If you don’t repay the outstanding finance, the lender could repossess it – leaving you without a car and without the cash you paid for it. While there is some legal protection for buying in good faith, getting that money back can be tricky, and could even end up in court action. Sometimes, dealerships settle outstanding finance as part of the sale. This is common, but you should discuss it with them before you hand over any money and get written confirmation that they’ll pay off the outstanding amount.

A vehicle check will tell you if there is any outstanding finance on the car. Basic checks can start from less than £5, although you can get a more detailed one if pay slightly more.
A full vehicle check will give you the details of the finance lender company, and you can contact them to confirm it’s been paid off. A check can also tell you whether or not a car has been damaged or had its mileage adjusted. You could ask the lender, but they normally only give details about outstanding finance to the agreement holder. This means you can only ask them about a car you’re currently paying for. You won’t be able to ask them about someone else’s car, even if you’re looking to buy.

Get your vehicle check before you commit to the sale. Once you’ve bought the car, the outstanding finance becomes your problem.

If you find out there’s outstanding finance owed on the car, you can walk away and leave it, or ask the seller to settle their debt with the finance company.
If you choose the second option, make sure the seller provides you with a clearance letter or other proof. Even then, you might want to check with the finance company to confirm. Ultimately, they can only sell the car when it’s theirs to sell. If you know the car has outstanding finance and buy it anyway, you could be liable as the seller. If the finance company can prove that, they could repossess the vehicle. Unless the seller agrees to pay off the debt and provides you with absolute proof that the car no longer has outstanding finance, buying a car with outstanding finance is best avoided.

If you bought a car and genuinely had no idea that it had outstanding finance, you have the right to keep it. This is called ‘good title’ and means you bought the car in good faith and without knowing it had outstanding finance.
But the finance lender will still want their money back and may contact you about the car. Should this happen, responding to any communication you receive from a finance company shows you’re honest and willing to cooperate. Email or write to the finance lender and explain the situation. Include details about when you bought the car and who you bought it from, along with other information like a copy of the receipt or sale certificate. You should get in touch with whoever sold you the car. Stay formal and polite, and keep a copy of any conversations so you have proof of who said what. This could be tricky, as they might not be easy to pin down. Or, they might have bought the car from someone else without knowing there was outstanding finance on it. Ultimately, the finance lender has to prove you knew there was finance left to be paid before they can act. Working with them can help, but if the lender does not accept your explanation. They may demand you make the outstanding payments or return the car. If they persist, stay clear and polite. If they attempt to repossess the car, and you're confident you have good title to the car, you can send a formal complaint to the finance company and contact Citizens Advice and the Financial Ombudsman. You could consult a solicitor who will be able to advise you about legal action to reclaim the car or your money, as a last resort.

We run a five-point basic vehicle check on all vehicles advertised on our website. This checks if a car has been stolen, scrapped, written-off, imported or exported. We won’t advertise a car if a check reveals it’s been stolen, scrapped or recorded as Category A or B write-off.
We strongly advise you to perform your own vehicle check with data guarantee for added peace of mind. Learn more about vehicle checks.