What Happens if I Sell a Car With Outstanding Finance?
Updated on Wednesday 27 January 2021
If you purchased a car on finance, but you’ve now changed your mind about it, or if you’re no longer in the financial position to have a car on finance, then you’ve probably got a few questions about what you can do if you’re in that situation.
What is car finance?
Car finance is essentially borrowing money in some way or another if you cannot afford to purchase a car with your own money.
There are several different options available for car finance, including:
- Using a personal loan
- Hire purchase
- Personal contract purchase
- Leasing
- Using a credit card and more
How does it work?
It works by the lender providing you with the money to sufficiently fund the purchase of your car.
Of course, with any loan or method of borrowing money, you’ll have to pay the money you borrowed back to the lender, often with added interest, over an agreed period of time.
Car finance eligibility
Your eligibility to be accepted for car finance will depend on numerous factors, most notably your credit history and credit score.
Lenders will likely do a credit file check on you to see your credit history and whether you’ve been good at making repayments in the past.
You can also check your credit score yourself before you start applying for car finance, in order to see if you would be eligible.
Cancelling car finance - how does it work?
In some instances, for example, if you decide that you can no longer make the repayments on your car finance agreement, then you may be able to cancel it.
However, if you have car finance in the form of hire purchase or personal contract purchase, in order to terminate your agreement, you will have to have already repaid at least 50% of your total finance amount.
What happens if I sell a car with outstanding finance?
If you want to sell your car, but you still have outstanding finance remaining above 50%, then there is still an option to cancel your car finance.
You will have to pay off the remaining monthly instalments up to the value of half of the agreed cost. So for example, if you have a car on finance for £40,000 and you’ve only paid £10,000 back so far, you will have to pay another £10,000 back on top to reach the halfway point of the original finance deal.
It’s important to remember, however, that you cannot actually sell the financed car if you still have an outstanding finance balance remaining; you must first pay it off before you can sell the car.
Is it a criminal offence to sell a car with outstanding finance?
It is illegal to sell a car that still has car finance remaining. Before you can legally make the sale, you must first ensure that the finance agreement has been settled in some form or another.
Frequently asked questions about car finance
Hopefully, you feel a bit more confident about what car finance entails, but in case you’ve still got a few more questions, we’ve included a brief FAQ section about car finance below.
Can I sell a financed car?
In simple terms, you cannot sell a financed car. It is actually illegal to knowingly sell your car to someone if it still has outstanding finance without informing them about it first. This is because the finance company will likely track the car down in order to repossess it.
If you do want to legally sell a car that still has outstanding finance, then you must tell the car finance company about your intentions to sell the car and ask them to provide you with a “settlement figure” of the amount they’ll require you to pay, in order to pay your loan off.
Once you’ve paid the settlement fee, plus any early repayment and/or administration fee as set out by the lender, you can then legally sell the car.
Can I transfer car finance to another person?
Generally speaking, you can’t simply transfer car finance from one person to another. However, there are several other things you can do instead.
Before you commit to getting a car on finance, consider using a guarantor instead, who will be eligible to make your car finance repayments in the event that you can no longer afford them.
As a general rule of thumb, most lenders won’t allow you to transfer your car finance over to another person, but it is entirely dependent on the car finance provider so it’s always a good idea to talk to them to see if you can come to an arrangement.
Another thing you could consider if you can no longer afford to make your repayments is to try and settle the outstanding debt and then take out another loan in the other person’s name.
While you might not be able to afford the repayments yourself and while you can’t actually transfer the car finance into another person’s name, you could always still ask them to help you out and pay for the repayments as a sort of friendly loan.
Car finance - different registered keeper
The registered keeper of the vehicle is usually the one who drives it the most, which means when you take out a car finance agreement, it will be registered in your name, but that doesn’t necessarily mean that you’re the legal owner of the car.
For example, a registered keeper of a car could be an employee whose company provides them with a car, but they’re not actually the legal owner; the company is.
Ending car finance early can come with its fair share of complications and issues and while it is possible to cancel your car finance early, it’s important to remember that you can’t sell the car if it still has finance remaining; you must first settle the agreement before you can legally sell it to someone else.
For further information and advice regarding financing a car, be sure to read our useful articles below.