Check Outstanding Finance on a Car
If you’re looking to buy a used car, there are a few essential things to check before you go ahead with your purchase. Completing a few simple checks can make the difference between purchasing a reliable machine that will satisfy your needs for as long as you own the vehicle, and ending up with an unreliable car that may not even be the sellers’ to give you legally.
One of the most overlooked yet essential considerations when buying a used car is to check whether there is any outstanding vehicle finance. With more cars than ever being sold on finance or credit agreements, the chances of this happening are higher today than in the past, and it’s vital to check before paying any cash.
How to check outstanding finance on a car?
The easiest way to check whether a vehicle has any outstanding finance hanging over it is by running a car registration check or looking at the vehicle history. These checks both provide you with essential information regarding the vehicle, including whether there is any outstanding finance or debts registered against it.
Suppose you’re purchasing your used car from a garage or dealer. In that case, you may be able to request them to undertake these checks on your behalf, or you could locate and use an appropriate check service by yourself if you’re unsure of the reliability of the seller.
What happens if I buy a vehicle with outstanding finance?
If a car has outstanding finance registered against it, technically, it still belongs to the company that’s owed the debt. This means that if the seller has brought the car on finance and hasn’t repaid in full before selling, the vehicle isn’t legally theirs to sell.
While you might have some defense under section 27 of the Hire Purchase Act 1964 (purchasing in good faith with no knowledge of the outstanding finance), it is possible that the finance company would be able to repossess your car if payments are not resolved.
Is it illegal to purchase a used car with outstanding finance?
It’s not actually illegal for you to purchase a car that has outstanding finance. However, it is unlawful for a person to sell a vehicle that has outstanding finance against it.
Before selling a car, it is a legal requirement to clear any debts against it so that the buyer is only purchasing the vehicle and not accepting your debt. Buying a car with outstanding finance can open a whole load of problems for you down the road, including the possibility of having the car repossessed by the finance company who are owed money! Because of this, it’s essential to check whether a used car has any outstanding finance against it before considering the purchase.
Can I buy a car with outstanding finance if I’m okay with it?
As mentioned above, it’s not illegal for you to buy a car with outstanding finance, although it can be a trickier process than it’s worth. If you and the seller are both upfront and honest about the outstanding finance, you could arrange an ‘additional payment.’ This gives the seller a chance to clear any remaining debts on the car before the purchase goes ahead.
You may also be able to request the seller have the finance company send you a pay-out quote so that you can clear any remaining debt yourself (and/or reduce the price of the car appropriately). This process is relatively straightforward and gives the seller to behave in a trustworthy manner. It will also ensure the finance company is kept in the loop and doesn’t need to resort to drastic measures over unpaid bills in the future.
Alternatively, you could do nothing. But suppose you knowingly purchase a car with outstanding finance and don’t intend to repay it. In that case, your s27 defense will be destroyed, and the finance company will remain the vehicle’s legal owners. Besides, they could have rights against you for the money if you knowingly purchase a car that legally belongs to a finance company.
So, even if buying a car with outstanding finance seems like a simple option, it will almost certainly cause more problems down the road that can be far more severe than dealing with the debt upfront.
What if I buy a car without carrying out an outstanding finance check?
Again, there’s no legal requirement on you to carry out an outstanding finance check, but skipping this step is almost certainly asking for trouble and comes with a whole host of potential risks!
While it’s certainly possible that you’re purchasing from a reputable seller and that the car is totally free from financial risks or other problems, this isn’t always the case.
Skipping the outstanding finance check could see you receiving a call from the finance company who are owed money, informing you that there is a considerable sum of unpaid debt against the car. This would then become your responsibility to deal with, and you would need to act quickly to rectify the situation before it gets any worse.
If this happens to you, it’s vital to seek legal advice as early as possible. A finance provider would be entitled to claim ownership of the car if there’s substantial debt that isn’t paid off promptly.
Legal assistance can help you prepare a defense that you knew nothing about the outstanding finance when you purchased the car. Still, many lenders simply won’t believe you and will reclaim the vehicle anyway.
The only way to avoid getting into trouble with the finance company is to run an outstanding finance check and resolve any issues prior to buying the car.
Can my insurance company cover outstanding finance on my new car?
If you do want to buy a vehicle that has outstanding finance against it, it might be possible for your insurance company to pay off any debts to the financer by way of a ‘settlement fee.’ Many insurance policies actually contain a provision permitting this activity. This provision would come into play whether or not you knew about the car’s financial situation before buying it.
The downside to allowing your insurance company to pay off the debts is that the seller will essentially be able to escape their debts, which might feel unjust if they’ve been dishonest when selling you a debt-ridden vehicle!
What is a fair way to deal with outstanding finance on a car I want to buy?
If the seller of the vehicle you want to buy is upfront and honest with you about any outstanding finance, it is possible that you could come to an arrangement that allows you to purchase the car without dealing with problems down the road.
Usually, this will involve the seller agreeing to pay off the outstanding debt before buying the car. Alternatively, you could agree to repay the lender yourself for a reduced purchase price. This only works if the outstanding finance is less than the car’s value; otherwise, you should walk away.
If you do agree that the lender will repay the debt before you take the car, be sure never to hand over any money until you’ve seen evidence that the loan has been fully repaid. Even sellers who appear trustworthy can “forget” to repay lenders, particularly after you’ve paid them and the car is gone… Leaving you with all the same problems as if you hadn’t talked about it before!
If the agreement is that you will repay the finance company, be sure to have the seller request the settlement figure from the insurance company and confirm it with them directly. Although the lender won’t be able to provide it to you due to privacy laws, they should be able to verify if the figure you have is correct.
Buying a used car with outstanding finance can get messy, but as long as both parties are open to fair and honest negotiation, there’s no reason why this needs to stand in the way of a sale.