Have you bought a car on finance that you don’t want anymore? Don’t worry. You’re in good company.
Most cars are bought on finance (over 85% in the UK), which means there are a lot of people looking to get out of their agreements. Because of this, lenders provide multiple ways to sell your financed car.
Can You Sell A Car On Finance?
No, you can’t just sell your car on finance. You are not the legal owner of the car until you have paid in full. However, you can settle up early and then sell your car. There are multiple ways to do this and it depends on the type of finance deal you have entered into (more on that below).
It’s important to understand the finer points of your finance agreement before you decide to. In the easy guide, we’ll explain how to sell your car on finance and whether it’s the right choice for you.
In the UK, most cars are bought on finance. That means there is a high demand for people looking to sell their cars before the end of the term.
There are three types of finance agreement:
- PCP (Personal Contract Purchase) – These have become very common in the last decade. The customer spread payments for a vehicle over a long period (two to three years) and has the option to buy the car (pay off the outstanding balance) at the end of the agreement. PCPs are similar to an HP (Hire Purchase) except that customers pay a deposit and then pay monthly deposits until the end of the term. At the end of the term, the customer can pay a balloon payment (the remaining value of the vehicle) and keep it. Alternatively, they can use the equity as a deposit on a new vehicle.
- HP (Hire Purchase) – This is a more straightforward finance agreement. The customer pays a deposit and then pays monthly installments until the car is completely paid off. The loan is secured against the vehicle so the customer doesn’t own the car until it is completely paid off.
- PCH (Personal Contract Hire) – This method is commonly used by large businesses. You don’t have the option to buy the car at the end of the agreement and you cannot sell the car. You are essentially renting the car for a longer period. Because of this, PCH contracts are often cheaper than PCP and HP finance deals but they don’t pay off in the long run.
The bottom line – If you have a PCP or HP finance contract, you will be able to sell your car (once you have paid the outstanding balance).
It’s important to remember – before buying a car on finance – that you don’t actually own the car, even though your name is on the paperwork. The lender is the owner of the car until you have paid it off in full.
In most cases, PCP and HP lenders offer an option to sell the car before you have finished paying. This is due to Section 99 of the Consumer Credit Act 1974 known as ‘voluntary termination’. To be eligible for a voluntary termination you must have paid 50% of the fees (including interest) and there must be no damage to the vehicle.
Voluntary Termination
Voluntary termination is designed to provide protection to both you and the lender.
On a PCP finance deal: you will have to pay the balloon payment (AKA the Guaranteed Future Value), the amount borrowed, plus interest and fees.
On an HP finance deal: you will have to pay the settlement figure (provided by the lender), which is usually available around the mid-way point of the agreement.
When you sell a car on finance, you have to pay the outstanding amount. You should contact the lender for this figure before deciding whether to sell because there might be interest and other fees that you haven’t taken into consideration. For example, lenders can add interest, extra fees, and more. However, for a rough estimate, the settlement figure should be close to the total value of the car minus what you have paid in deposit and monthly payments.
How To Sell Your Financed Car
Selling your financed car should be an easy process. Here’s our detailed guide, so you can complete the process pain-free.
Step 1:
Ask your lender to provide the settlement figure. This is the outstanding amount left to pay on the vehicle. It’s important that you get an accurate figure before considering whether to sell or not because the internet/fees could make the sale less viable. Once the lender has provided the settlement figure, there will be a set period of time for you to pay off the outstanding amount.
Step 2:
Next, you need to check the value of the car and ensure that you will be left with enough to pay the settlement figure (and maybe even make a profit). You can use a car-buying website to get a valuation. There’s a chance you could get more from a private sale but we would recommend using the car buying website’s price.
Most car buying websites will pay the outstanding balance as part of the sale. This can be an easy way to sell your financed car but you aren’t likely to get the best price for it.
Step 3:
Before you sell, you have to pay the settlement figure in full. That means you can’t just go onto Auto Trader and sell the car, then pay off the difference. This is because you don’t technically own the car. The lender owns the car until you have paid it off. You could use your own money to pay the settlement figure and then sell the car (hopefully for a profit). Alternatively, you could use a car buying website and they will pay the settlement figure as part of the transaction.
Step 4:
Decide whether you are going to sell privately or to a car buying service. If you decide to sell privately, the buyer can use the settlement figure (and official statement) to pay off the outstanding balance directly. Then, they can pay you the difference. This is the best way to get a higher price for the car. Alternatively, you can sell to a car buying website and they can take care of the settlement figure.
If you opt for voluntary termination, you won’t usually have to pay the interest. This can be the most affordable way of getting out of a finance agreement but it’s not necessarily the best. You might also have to pay an early exit fee, which is typically the cheapest of the following amounts:
- 1% of the outstanding amount.
- 0.5% of the outstanding amount if there are fewer than 12 months to be repaid.
If the outstanding amount is less than £8,000, you shouldn’t have to pay an early exit fee but you will have to pay the interest.
When selling a financed car, an outstanding finance check can be helpful to get a clear picture of the vehicle’s current status.
Should You Sell Your Financed Car?
There are good reasons for and against selling your financed car. Here are some of the most commonly asked questions with regards to selling a financed car.
What If I Can’t Keep Up With The Monthly Payments?
If your financial situation changes, you might not have the money to keep up with the monthly payments. If this is the case, selling your financed car could be a way to stop paying. In most cases, you’ll have to have paid 50% of the car’s value as well as any interest or fees.
If you can’t keep up with your monthly payments but you still want to keep your car, you should contact your lender immediately. In most cases, they will be able to sort out an alternative payment plan. Lenders are experienced with this sort of issue and typically have a system in place to help you out.
Can I Swap It In For A New Car?
One of the most common reasons that people want to sell a financed car is so they can swap it in for a newer model. If you have bought a car on a PCP finance deal, there is usually an option (once you have paid around 50% of the payments) to use your equity as a deposit on a new car. Alternatively, if this isn’t possible, you might be able to sell the car and then start a new finance agreement as two separate transactions.
Can I Take Out A Personal Loan To Pay The Settlement Figure?
Yes, you can take out a personal loan and use it to buy the car outright. You will have to ask the lender for the settlement figure and pay it off in full. Then, you will be the registered owner of the car. Using this method, you could lower the amount of interest you are paying on the car by taking out a lump-sum loan, instead of paying the PCP finance agreement. You could also take out a loan, sell the car, and then pay off the loan.