Purchasing a car on finance can be an ideal way to get a favourable deal on a brand-new vehicle, but what happens if you’re ready to sell the vehicle before the finance agreement has ended. Whilst in some circumstances, it’s possible to do this, it’s a complicated process compared to selling a vehicle that you own outright, this is because until the payments are complete and the agreement has ended, the finance company that you are leasing the vehicle from are the rightful owners of the vehicle. Don’t worry though, we’ve got you covered, with this helpful guide on selling your car with outstanding finance..
Understanding your finance agreement
Firstly, it is essential that you understand the type of finance agreement you have on your car. There are different types of finance agreements, such as Personal Contract Purchase (PCP), Personal Contract Hire (PCH), Hire Purchase (HP) and personal loans. Each agreement has a different set of rules and regulations when it comes to selling a car with outstanding finance.
Selling a car with outstanding PCP finance:
PCP or Personal Contract Purchase is a popular finance option for many car owners. With PCP, you make fixed monthly payments for a set period of time, with the option to either return the car or pay the final big payment (also known as a balloon payment) to own the car outright. If you want to sell a car on PCP, you first need to obtain a settlement figure from the finance company. This is the amount you need to pay to settle the finance agreement in full. Once you have this figure, you can work out how much you’ll have left over from the sale of the car. You can then use this money towards a deposit for a new car or pay off any remaining debt.
Selling a car with outstanding PCH finance:
PCH or Personal Contract Hire is similar to PCP, but you don't have the option to buy the car at the end of the agreement. With PCH, you simply lease the car for a set period of time and then return it to the finance company. Unfortunately, you cannot sell your PCH car. You can end the contract early if you need to, but this can be expensive.
Selling a car on finance requires certain paperwork
When selling a car on finance, it’s important to keep all the relevant paperwork together. This includes:
- The finance agreement
- The V5C registration document
- Any receipts for payments made
You’ll also need to provide a sale receipt for the car, which should include the seller’s full name and address, the buyer’s full name and address, the make and model of the car, the registration number, the sale price, and the date of sale.
We should say that selling a car on finance without informing the buyer is illegal. You must inform the buyer of any outstanding finance and provide them with the relevant paperwork. Failure to do so could result in legal action being taken against you.
How to sell a financed car?
Now you understand the types of finance agreements, check out our next steps for selling a financed car:
- Contact your finance provider and inform them of your intention to sell. Since they are still the legal owner, you will need their permission.
- Once you’ve gained permission, ask for a settlement figure. If you’ve already reached the half way mark in the original agreement, there may be opportunity to return the car and close the contract through voluntary termination.
- If you haven’t paid more than half of the original agreement, you may still be allowed to return the vehicle for them to sell, this will then be deducted from your remaining amount, however, you will still need to make monthly payments until you’ve paid off 50%. Remember that the sooner you return the car, the higher its value is likely to be. Just be aware that you'll still be making payments for a car that you no longer have.
Is it possible to Part Exchange a financed car?
If you want to replace your financed car with a different one, you can part-exchange it. The process is similar to selling the car:
- Inform your finance company about your intention to sell.
- Request a settlement figure from them.
- Inquire with the company you plan to finance your new car from about the amount they will pay for your part-exchange vehicle.
If their offer exceeds your outstanding finance, you'll have positive equity. This value can be used towards your next car. For example, if your car is valued at £10,000 and the remaining finance is £1,000, you'll have £9,000 to put towards your new vehicle.
If the amount you owe to the finance company is higher than the offer you receive, you'll have negative equity. In this case, you can either separately pay off the remaining amount or ask the new finance company if they can include it in the agreement for your new car.
So, can you sell a car with outstanding finance?
Yes, it is usually possible to sell a car with outstanding finance. As long as you don’t have a PCH contract, you can obtain a settlement figure from the finance company and inform the buyer of any outstanding finance. If you’re looking to sell your car on finance, consider Sell 2 Swansway, who can help you navigate the process and provide a hassle-free selling experience. Chat to one of our team now, or get a fast and competitive car valuation.
Or, if you’d rather part-exchange for another car, make an appointment with one of our dealerships to discuss your options.