Can you sell a car on finance? Everything you need to know

Want to sell a financed car? Our guide explains if this is possible.

Given the higher prices for new cars, it’s unsurprising that the vast majority of them, and a significant proportion of used cars, are bought using some form of finance package.

If you’ve bought a car on finance and now want to sell it, it might be possible, but you need to be aware of all your financial responsibilities before doing so.

Our comprehensive guide explains how and when you can sell a car on finance.

Can I sell a financed car?

Technically no, but in reality yes.

Here’s the deal: when a car is purchased with a finance contract like a PCP agreement, it is not yours – it belongs to the finance company, so you do not have the right to sell it until the outstanding finance and any administration charges are paid off.

Most financing agreements are organised so the buyer is in ‘negative equity’ for about the first half of their contract. This is because new cars usually lose a lot of value quickly at the beginning, but then depreciation slows down, which is when payments catch up, leaving the buyer in ‘positive equity’.

Positive equity is when your current car’s value is more than the settlement figure (the amount of money you will have to pay to clear a loan agreement in full): when your settlement figure is higher than the car’s valuation, you have negative equity. 

There are a few ways in which you can mitigate any negative equity in your car. You can ensure that the car doesn’t exceed its agreed annual mileage or have any damage that will lower its valuation. Another tactic is to make some overpayments, if your agreement allows this, or increase the monthly payments, so you’re paying down the debt quicker than the car depreciates. Alternatively, make a larger initial deposit, so that you start off with more equity.

If you intend to sell your car, the first thing you need to do is ask your finance company for the settlement figure. The company has to provide a figure within 12 days, but they tend to be faster than this.

Once you have it, the settlement figure is valid for 10 days, so that’s how long you have to pay off that amount and sell your car: if it’s not possible in that timeframe, you can get a new settlement figure. The cash received from selling the car is used to settle the outstanding finance.

The process might seem a little complicated, but it’s easier than it sounds and dealers are familiar with financing and can help you get it sorted.

Unfortunately, if the amount you’re offered for your car doesn’t cover the outstanding finance (and you still want to sell), you will have to cover any shortfall yourself. If the car is worth less than the settlement figure, you will need to pay this shortfall to get out of the deal.

Most financing agreements are organised so the buyer is in ‘negative equity’ for at least the first half of their contract. New cars lose a lot of value quickly, but then depreciation slows down, which is when payments might catch up, leaving the buyer in ‘positive equity’.

If your current car’s value is more than the settlement figure (the amount of money you will have to pay to clear a loan in full), you have positive equity: when your settlement figure is higher than the car’s valuation, you have negative equity. 

There are a few ways in which you can try to minimise any negative equity in your car. You can ensure that the car doesn’t exceed its agreed mileage or have any damage that will lower its valuation. Another tactic is to make some overpayments, if possible, or increase the monthly payments, so you’re paying down the debt quicker than the car depreciates. Alternatively, make a larger initial deposit, so that you start off with more equity. 

Our guide to settling car finance early has more information.

It’s important to remember that if you have a car on finance and sell it without settling the finance first (e.g. just take cash from a private buyer and hand them the keys and logbook), you’re committing fraud.

There are four main car financing options, each of which we will cover in this guide.

• Personal contract purchase (PCP)
• Hire purchase (HP)
• Personal contract hire (PCH)
• Personal loan (such as from a bank)

Selling a car with outstanding PCP finance

Cars financed by a PCP agreement belong to the finance company, so you don’t technically have the right to sell it if this is the type of financing you’re using. 

However, car dealers do have the ability to easily settle the finance on a car that is still under a PCP contract, enabling you to get out of your current deal and into a new car. You can also do it yourself by speaking to your finance company directly and settling any outstanding sum owned on the car, but a car dealer can easily do this for you.

You will need to settle any outstanding finance before selling a car.

PCP financing involves paying an initial deposit and a series of monthly payments for an agreed period (usually between two to four years), with these sums paying off the car’s depreciation over the course of the contract. The car remains the property of the finance company throughout the deal and, at the end of your agreement, you won’t own it. You can either return it car to the dealer with nothing left to pay, start a new finance agreement on a different car, or pay a lump sum to buy the car outright.

This lump sum – also called the optional final payment or ‘balloon’ payment – is set out in the original finance agreement. Along with all monthly repayments, this sum needs to be paid to become the legal owner of the car, giving you the right to sell it.

If you’ve already paid off more than 50% of the agreement, you can usually hand it back and voluntarily terminate the contract.

On the other hand, if you haven’t paid off 50% of the original agreement value, you’ll have to speak to your finance company. They might agree to you handing the vehicle back, which they can sell on, and credit that back against the amount you need to pay. You will need to carry on making your monthly payments until you have paid back 50% of the total agreement, however. 

If you want to sell your car to a private buyer, you will have to contact your finance company, to agree on a settlement figure, which has to be paid before you sell the car. With a PCP, the settlement amount includes all remaining finance payments, interest, admin charges and the balloon payment.

If you’d rather sell to a dealer, you must still agree on a settlement figure with your finance company. Dealerships can help arrange this, especially if you are staying within the same brand of car.

Selling a car with outstanding HP finance

Hire Purchase agreements enable buyers to pay for the car over a specified period of time (e.g. three years), with the monthly repayments paying off the total cost of the vehicle.

As with PCP deals, the car remains property of the finance company throughout, although unlike a PCP deal, there is no final balloon payment. Monthly repayments tend to be higher than with a comparable PCP deal and pay off the total cost of the car: this means you own the vehicle at the end of the contract.

Until the end of the contract, though, the car isn’t yours to sell.

If you choose to sell it to a private buyer, you must first agree on a settlement figure with your finance company. This figure will cover the cost of all remaining monthly payments, plus interest.

As with PCP finance, you can choose to sell your car to a dealer instead, following a similar route to the one set out for PCP deals above.

Selling a car with outstanding PCH finance

Personal Contract Hire (PCH, sometimes called leasing) deals are essentially long-term rental agreements aimed at individuals. You pay an initial deposit (from a few months or up to one year’s worth of payments) and make fixed monthly payments for the remainder of the term of the agreement.

As with PCP financing, you can be charged additional fees at the end of the agreement if the car is in poor condition or you’ve recorded a higher mileage than agreed. Ending a PCH contract early can also be expensive.

If, for some reason, you are particularly taken with your leased car, you might be able to discuss buying it from the lease company at the end of the contract – but there is no obligation on them to sell it to you.

Selling a car with an outstanding personal loan

If you take out a personal loan to buy a car, you own the car outright as soon as you buy it. You will have to pay the bank or loan provider back in accordance with the agreement you make, but there’s nothing stopping you selling the car and making the repayments from the proceeds of the sale.

As long as you repay the loan, you can do what you want with the car.

The one thing to note, however, is that a new car can depreciate rapidly in the first three years, so you could find yourself in negative equity during that period if the value of the car is less than the outstanding amount of the loan.

How to sell a financed car

If you decide that you definitely want to sell your financed car, there are a number of steps that you need to take.  

Settlement letter

The first thing to do is contact your finance company to tell them that you’re thinking of selling your car and that you’d like a settlement letter. Most lenders should be amenable to a sale (as long as you fully repay the finance), but you should confirm what their policy is before going any further. Some lenders might charge a fee for early settlement, but that should be specified in the contract you signed at the start of the deal.

Valuation

The sale of your car has to generate enough funds to pay off the outstanding finance, so you need to know its current market valuation. You can do this quickly and easily with Carwow’s free car valuation service.

Preparing the car

Once you have the settlement figure, you need to prepare the car for sale, gathering together all the necessary documents, such as the V5C logbook document (proof of ownership), the service history (a full service history will increase a car’s value) and MOT certificate.

A spare key will also contribute to a higher valuation, as will a full clean to ensure your car is looking spotless and any scratches and dings fixed.

The offer

If you’re selling with Carwow, after getting a valuation, all we need is a few more details about your car and some photos. Once we’ve got them, our team will get in touch to help you set a reserve price, which is the amount you’d be happy to sell your car for (which should be more than the outstanding amount on the finance deal, if you’re not going to lose money). 

Carwow will do everything else. The car will be advertised in our online auctions and more than 4,000 dealers across the country can bid on it. After the auction, we’ll let you know the offer.

Confirmation of sale

Once you accept the offer, the winning dealer will be in touch to arrange a free collection of your car and your payment – most payments arrive on the same day as your car is collected, but some dealers have their own policies.

When the car is collected, you’ll need all the paperwork (V5C, service history, finance settlement letter) along with the spare keys and any locking wheel nut. 

Settling the finance

How you settle your outstanding finance will vary, depending on your finance company’s policies and whoever buys your car.

If you sell to a dealership, many will deal directly with your finance company to settle the outstanding balance, while others may ask you to settle the finance independently. If the latter, you can usually do everything over the phone, or by using online banking.

It’s important to discuss the exact process with both your finance company and the car buyer. 

Completing the sale

As soon as the outstanding finance is settled, the car is officially yours to sell. All you have to do is complete the necessary paperwork with the buyer and shake hands on the deal.

Surplus?

If you sold your car for more than the outstanding finance, you’ll receive any balancing payment from the buyer after completing the sale. With the outstanding finance settled, the sale might leave you with some extra cash. 

Feedback to lenders

There can be many reasons to sell your car during the term of your finance agreement, but if you’re doing so because you’re struggling to meet repayments, speak to your lender to inform them of your situation. They understand that people’s financial circumstances change and will often do what they can to help you manage your payments, or negotiate an alternative repayment schedule.

FAQs:

Is it illegal to sell a car with outstanding finance?

You are not the legal owner of the vehicle until it is fully paid off, so you’re not legally allowed to sell it without settling any outstanding finance first. You can settle this amount by selling the car through a dealer, however.

How do I get a settlement figure for my car?

You should contact your finance provider to get an up-to-date settlement figure for your car.

What happens if I sell a car with outstanding finance?

It is illegal to sell a car with outstanding finance to a private buyer without making them aware of the car’s status.

To legally sell your car, you must first settle any outstanding finance. If you are caught knowingly defrauding someone into buying a car with outstanding finance, you could face legal action.

If your car is financed using Personal Contract Hire (PCH) finance, you cannot sell it at any point.

I bought a car with outstanding finance, what are my rights?

There are many online services that allow you to check whether a car has any outstanding finance before your buy it. They aren’t free, but they often include additional information, such as whether a car has been previously written off.

If you unknowingly buy a car that has outstanding finance payments, you may have the right to keep it, providing you can prove you bought it in good faith. The finance company will attempt to check you are an innocent party first, but they will ultimately decide who must pay the outstanding finance. 

Typically this will be the person who signed the original finance agreement but they may decide you are liable for this amount instead. You may want to seek legal advice in this situation or contact the Financial Ombudsman.

Does voluntary termination of car finance affect credit rating?

Voluntary termination will show on your credit record, but it will probably have less of an impact than missing multiple finance payments. If you are facing financial difficulties, you should seek independent professional financial advice.

Can I sell my car back to the finance company?

The car is not yours to sell, so no.

Can I part exchange my car with outstanding finance?

Again, the finance will need to be settled first, but a dealer might be able to help you with this.

How much is my car worth?

If you want to discover how much your car is worth, once you’re in a position to sell? Check out carwow’s car car valuation tool to find out how much you could get for it.

Better still, why not sell your financed car with carwow? You can get offers from our network of trusted dealers quickly and easily, without having to deal with timewasters or tyre-kickers.