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Can I sell a financed car? Everything you need to know

August 24, 2021 by

Financing is a great way to get behind the wheel of a new car without having to part with a huge sum of cash in one go.

However, until you have paid it off, the lender is the legal owner of the car — making selling a car a bit trickier than a car you own outright. Looking to do exactly that, though? This guide should help.

Oh, and once you’re in a position to sell, why not sell with carwow? Just click the green button below to find out more, or go here for a valuation.

Can I sell a financed car?

The finance type you have purchased your car with will determine how and if you are able to sell it.

As a general rule, it all comes down to whether or not you are the legal owner and if you can become that under your agreement.

It’s likely your provider will ask for a settlement fee if you have time remaining on your agreement — and selling a car with any outstanding payments is illegal.

The four main car financing options available:

Personal contract purchase (PCP) explained

PCP finance requires that you pay an initial deposit and monthly payments for an agreed period (usually two to four years). At the end of the set term, you can return it to the dealer, trade it towards another car on a PCP agreement or pay a lump sum to own the existing one outright.

This figure is based on the Guaranteed Minimum Future Value (GMFV). This is worked out based on the amount paid already, deposit, mileage and condition.

Can I sell a car on PCP finance?

Short answer: Yes. You will need to buy it outright to sell it or settle 50% of the outstanding amount to end the agreement.
If you intend to personally sell the car to someone else, then the entire finance amount will need to be paid off first. This can be done by paying the outstanding payment and balloon payment in one lump sum or waiting until the contract has ended.

How to end a PCP agreement early

The voluntary termination clause is available to you if you have paid off 50% of the total finance amount. This includes the final balloon payment and interest and fees, so it will be further into the agreement than simply halfway through the term of the agreement.

How to end a PCP deal early if you’re not eligible for voluntary termination

If you haven’t repaid 50% of the total finance amount, you can still end the agreement early by paying the difference. For example, if you’ve already paid back £10,000 and the total finance amount is £25,000 – you’ll have to pay an extra £2,500 to reach the required 50% mark.

Hire Purchase (HP) explained

Hire Purchase agreements consist of an initial deposit and an agreed-upon number of monthly payments. Unlike a PCP deal, there is no balloon amount at the end of the deal which means you own the car outright after the final payment, however, the monthly payments are often higher.

Can I sell a car on HP finance?

Short answer: Yes. You will need to pay it off before selling it or settle 50% of the outstanding amount to return it to the lender.
Just like with a PCP deal, if you want to sell the car to a third party, then you will have to either settle the outstanding finance amount in full or wait until the car is fully paid off.

How to end an HP agreement early

If you just want to get out of the financing agreement, then you can also use the voluntary termination clause which allows you to return the vehicle to the lender once 50% of the total financing amount has been paid off. If you are below this threshold, you may be able to pay in extra to reach the required amount.

Personal contract hire (PCH) explained

Personal contract hire is essentially a long-term rental agreement aimed at individuals. You agree on an initial deposit (up to one year’s worth of payments) and then make fixed monthly payments for up to four years.

There is no option to buy the car outright, however, the payments are generally lower and may include servicing costs making this a low-hassle financing option. If there is no undue wear and tear and you have kept within the agreed mileage limit, there is nothing further to pay when you hand the car back.

Can I sell a car on PCH finance?

Short answer: No. You are never the legal owner in a PCH agreement.

Since the car is always owned by the lender you are not entitled to sell the car at any point during the financing agreement.

How to end a PCH agreement early

If you have a personal contract hire (PCH) agreement or a car lease, it’s much more difficult to get out of the agreement before the end.
In some cases you may have to pay off your whole leasing agreement – even if you return the car early.

Depending on your exact contract you may be able to use “early termination” to bring the agreement to a close. However, this usually involves paying at least half of the remaining costs.

For example, if you had a three-year lease paying £200 a month (so £7,200 in total) and wanted to end the agreement after one year, it would cost you £1,200 (the amount required to get to 50% of the total amount payable).

If you’re struggling to afford the lease, it might be possible to extend your agreement to reduce the amount you pay each month. You’ll have to contact your finance provider to negotiate these terms.

Personal loans explained

This is essentially a loan you get from a financial institution that can be used for purchasing a car (or anything else, really). Interest rates are generally fixed, and the payment period can be as long as seven years. There is no balloon payment or deposit because, from the dealer’s point of view, the vehicle has been purchased in cash.

Can I sell a car with a personal loan?

Short answer: Yes. You are the legal owner of the car but will still need to pay your loan back to the financial institution.
A personal loan is between you and your bank, this means that if you sell your car before the loan is paid off you will still have to repay the outstanding amount.

Steps to sell your financed car

If you have determined that your finance deal allows for you to sell or return your car, then follow this checklist to find out what to do next:

  • Contact your finance provider to get an up to date settlement figure for your car. They should get back to you within 12 days and you will have up to 10 days to settle the outstanding amount.
  • Pay off the total outstanding amount and have the vehicle transferred to your name. Once this is done you are free to sell your car.
    Use our valuation tool to get a representative figure of what your car is worth. We now also offer a used car buying service which means you can sell your old car to us and buy a brand-new car at the same time, hassle-free.
  • Remember that selling a car with the outstanding finance is illegal. If you are in financial trouble it is better to opt for voluntary termination (possible with PCP and HP deals) and ensure that 50% of the outstanding amount has been paid. You will need to contact your finance company in writing outlining your intentions if this is the route you intend to take.

How much is my car worth?

Want to find out how much your car is worth once you’re in a position to sell? Check out carwow’s valuation tool to find out how much you could get for it.
Better still, why not sell it with carwow? You can get offers from our network of trusted dealers quickly and easily, without having to deal with time-wasters or hagglers.

FAQ: Selling a financed car

Is it illegal to sell a car with outstanding finance?

Yes. You are not the owner of the vehicle until it is fully paid off so are not legally allowed to sell it.

How do I get a settlement figure for my car?

Contact your finance provider to get an up to date settlement figure for your car. They should get back to you within 12 days and you will have up to 10 days to settle the outstanding amount.

What happens if I sell a car with outstanding finance?

You will still be liable for the outstanding amount and the finance provider will try to get the money back from you. The buyer may be allowed to keep the car if it was bought in ‘good faith’, however, you can still be charged with fraud and may face additional fees and penalties. If the vehicle is repossessed from the new owner you may also be sued by them to recoup their costs.

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

If you end up buying a car that has outstanding hire purchase payments then in most cases you have the right to keep the car if you didn’t know the car was subject to a conditional sale agreement, was bought in good faith and you are a private buyer.

Does voluntary termination of car finance affect credit rating?

It will show on your credit record but should only have a minor impact on your credit rating. It is therefore far preferable to missing payments.