How to check if a car has outstanding finance
When you’re looking to buy a car, whether that’s from a dealer or a private seller, you should do a check on the vehicle you want to buy to make sure it isn’t still on a finance agreement.
Buying a used car will be cheaper than buying a brand-new set of wheels, but you should be extra careful to avoid being scammed.
When you buy a used car, it is wise to conduct some further checks to make sure everything is as it seems. For example, you want to make sure the car doesn’t have any dangerous faults, isn’t stolen, and doesn’t have any finance outstanding on the car.
Read on to learn how to find out if a car still has finance owing on it, and what to do if you have accidentally bought a car with outstanding finance.
Can I buy a car with outstanding finance?
You can’t technically buy a car with outstanding finance as the seller won’t be the legal owner of the car and so won’t be in a position to sell it. While someone is making repayments on their car, the finance provider owns the car, not the driver. Ownership only transfers to the driver once all payments are made.
You can’t sell a car without the permission of the owner which, in this case, would be the finance company.
So, if someone still owes money on their car finance agreement, it is illegal for them to sell the car.
How can I check if a car has outstanding finance?
To avoid buying a car with outstanding finance, you can conduct an online vehicle history check which will show you information about the car, including its finance situation.
There are free checks available where you can see if a vehicle has an up-to-date MOT for example, but you will need to pay to get further information. These more comprehensive checks will show you details like if the car:
- Has outstanding finance, and which finance company is providing it.
- Has been reported as stolen.
- Has been involved in a major accident.
- Has been written off and then repaired.
The fee for these checks is fairly small, typically no more than £20. It may be tempting to skip the checks, but it is worth doing them to highlight any problems with the car and to save you potential stress and worry after you’ve bought it. If you find problems after the transaction is complete, it will be too late to back out.
You will sometimes be able to choose from different levels of checks which cost different amounts, so make sure you pick one which will give you the information you want.
Several organisations allow you to pay for a comprehensive vehicle history check, and the one carried out by the vehicle history checking service HPI is one of the most well-known.
It is particularly important to do these checks if you are buying from a private seller. Even if you know the person and trust them, it’s possible that they may have unknowingly bought a car with outstanding finance that would then be passed on to you.
If you buy a used car from a dealership, they should have done their own checks. You can ask to see proof of a vehicle check and any relevant paperwork, such as a document saying any finance is paid off. Even if you have seen this, you may still want to do your own checks to give you peace of mind that all is as it should be.
What happens if the car has outstanding finance on it?
If your checks show there is outstanding finance on the car you want to buy, it’s important you don’t proceed with the sale until this is settled.
You should question the seller about it and ask them to pay off the finance before you continue with the sale. Hopefully the seller will then pay the settlement figure, but don’t take their word for it. Ask them to show you the documents as proof, and you may want to contact the finance company directly to confirm the debt is settled.
You and the seller could also come to an arrangement where you pay off the settlement figure and take that sum off the initial price of the car. You can contact the finance provider to make sure the settlement figure the seller gave you is the correct one.
But be very wary if the seller says they’ll repay the finance after you have paid for the car, as there is a risk that they won’t and the debt will fall to you. In this situation, since you would be aware of the outstanding finance, your rights to “good title” could be affected (as explained in the next section).
Once you are happy that everything is settled and above board, you can proceed with the sale. However, if you aren’t comfortable with the arrangement and feel something is wrong, you should walk away from the deal and find another car.
What happens if I accidentally buy a car with finance on it?
If you’re unlucky enough to buy a car with outstanding finance on it, and you only find out after the sale is complete, all is not lost.
The first you may know of the finance owing on your car is if the finance company contacts you to repay the debt. While this can be worrying, Section 27 of the Hire Purchase Act (1964) can help you if you’re in this situation.
Thanks to this legislation, if you bought your car with no knowledge of the outstanding finance on it, you have the right to keep the car under something called “good title”.
However, the finance company will want their money, so they will try to prove that you don’t have good title and try to get you to repay the loan. If they succeed in showing you bought the car knowing about the finance, they are entitled to demand repayment and, if it came to it, to repossess your car.
If the finance company contacts you, don’t ignore them. Reply to them and explain the situation, giving as much detail as possible, including information like:
- The name and address of the person who sold you the car
- When you bought the car
- How much you paid for the car
- The advertisement for the car sale, or a copy of it
- Any documents from the sale that show proof of purchase
Make sure you keep records of any communication with the finance company.
You could try contacting the seller to ask for a refund or to ask them to pay the finance. However, the person who sold you the car knowing there was finance on it is unlikely to be of any help, and you may not even be able to find them to contact them.If you can’t reach a solution and the finance company is still demanding you pay the finance, you can submit a formal complaint to the company. If your complaint isn’t resolved to your satisfaction, you might want to get in touch with the Financial Ombudsman Service. You can also contact Citizens Advice for more help.
Image source: Getty Images
Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more