Can you sell a car with outstanding finance?
Whatever finance agreement you are on, you’ll need to pay a settlement figure before you can think about selling your car. Find out what you need to do to sell your car on finance and if it is the right option for you.
When you buy a car on finance, the name on the contract is yours, but you won’t own the vehicle until you’ve paid the costs in full. While you are making repayments, the lender legally owns the car so you will not be able to sell it.
However, if you do want to sell your car, there are steps you can take so you are in a position to do so.
Read on to find out how you can sell a financed car, and whether it is the right decision for you.
Can I sell a car on finance?
Technically no, not without consulting your finance provider. You can’t sell a car on finance as you don’t legally own it until you have made all your payments. You can only sell your car once you have finished your contract, made all your monthly payments and paid the option to purchase fee (Hire Purchase) or the balloon payment (Personal Contract Purchase) which makes you the vehicle’s legal owner.
It’s illegal to sell a car on finance without telling the buyer that you still owe money on it and without paying off the debt. If you don’t tell the buyer, you will have committed fraud and could be prosecuted.
The finance provider could take you to court if you don’t settle the debt and fees, and/or for breaking the terms of your contract.
The buyer will be affected too. Their new vehicle could be repossessed by the finance company, however they may allow the buyer to keep the vehicle if it was purchased in good faith; this is known in the auto trade as having a good title.
However, if you bought your car using a personal loan, you can sell the car whenever you like as you are its legal owner. You just need to make sure you continue to make the monthly loan repayments.
What can I do if I want to sell my financed car?
If you don’t want to wait until the end of your contract to sell your car, you do have some options.
Whatever type of car finance you have, if you want to sell your car before the end of the contract you will have to contact your finance provider to get a settlement figure and pay it to clear your loan. Once you have paid this settlement figure, ownership of the car would transfer to you and you are free to sell it if you wish.
A settlement figure is the amount needed to repay the loan in full, or to settle the agreement between you and the finance company.
This figure will normally be cheaper than continuing with your monthly repayments as it won’t include the accrued interest you would have had to pay. However, it is likely to include early repayment fees and other charges.
To be able to sell your vehicle you must pay the settlement figure in full, along with any admin fees. Once you have paid this you can arrange to sell the car. Because the settlement fee has been paid, the new buyer of the car will be the new owner.
Will a new car dealership settle my outstanding finance?
When selling your car to a dealership, if you have outstanding finance, the dealer will require an up to date settlement figure for your car finance. Some dealers may pay the settlement figure directly to your lender if it is less than the value of the car, after which they will either pay you the surplus or you can use it for a deposit on a new vehicle.
» COMPARE: Find new car finance deals
Should I sell my car on finance?
There are many reasons why you might want to sell your car on finance, but selling may not always be the best option.
To help you work out if paying the settlement figure then selling the car is the right decision, you should first get a valuation for your car. You can do this for free by entering some details about your vehicle on an online valuation tool, seeing what similar models are selling for, or by getting a quote from a dealer.
You should also ask your finance provider for a settlement figure. You can then compare this with the value of your car to see if it makes sense to pay the settlement and sell.
If the car is worth more than your settlement figure, then it may be worth continuing with your plans to sell your car as, all being well, you should be left with a profit once you sell.
However, if you’re in negative equity (when the settlement figure is greater than the value of your car), paying the settlement sum then selling the car may not make the most financial sense. You would be unlikely to recoup the cost of the settlement figure by selling the car, leaving you with a loss.
Depending on your reasons for wanting to sell, you could wait and continue your monthly payments until you are in positive equity, or consider one of the options below.
Alternatives to selling
Paying the settlement figure and then selling your car may not be the only solution. Of course, the best option for you will depend on your individual circumstances and the reasons for wanting to sell your car, but it is worth considering some alternatives including:
- Continuing with your payments. Especially if you’re close to the end of your contract, you may want to carry on making monthly payments and pay the final fee (if applicable) to become the owner of your car. You would then be able to sell it. Depending on the interest rate and fees and how many payments you have left, this may be a cheaper option than settling your finance early.
- Return the car. If you are in negative equity, paying the settlement figure may not make financial sense. Instead, it may be better to continue paying the monthly instalments and then cut your losses by returning the car at the end of the contract. This decision would depend on several factors, such as whether you can afford to make the repayments, how many payments you have left to make, the value of your car, and your reasons for wanting to sell.
- Cancel your car finance contract. If you have paid 50% or more of your total car finance agreement, you can return the car to the provider. This is known as voluntary termination and is available on both hire purchase and PCP.
However, bear in mind that voluntary termination is designed to protect consumers who can't afford their repayments, and isn’t really intended for people to regularly end contracts early to switch cars. It will also appear on your credit file, although it shouldn’t significantly affect your score.
» MORE: Cancelling car finance
Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more