Guide to Selling a Car With Outstanding Finance

It is currently estimated that 2.1 million vehicles have been sold under finance agreements over the past couple of years. This is a continuously growing figure, as most finance solutions allow buyers to pay in monthly instalments, making car ownership more budget-friendly.

However, this approach often means many people are tied to long-term contracts, which can make it difficult to switch vehicles if lifestyle needs change. If this sounds familiar, do not worry, you are not stuck with a car that no longer suits your life.

This article will explore the various options available for selling a car with outstanding finance, along with the potential impact such decisions may have on your credit score.

Contents

• Can I sell a financed car?
• Understanding car finance agreements
• Positive vs. negative equity
• Private sale vs. dealer sale
• Impact on credit score
• Frequently Asked Questions

Can I sell a financed car?

The simple answer to this question is no, it is not possible to sell a car with outstanding finance. However, this does not mean you are stuck with a car that no longer serves its purpose in your life just because you are tied to a lengthy contract.

There are several alternatives for settling your debt before reselling the vehicle. The steps you will need to take depend on the type of car finance agreement you have, how much you still owe the lender, and most importantly, whether your car has positive or negative equity. So, first things first: find out what type of finance contract you are under.

Next, request a settlement figure from the lender to determine the total outstanding balance. Legally, the lender has 12 days to provide this figure in writing.

Understanding car finance agreements

There are several types of car finance agreements available. The most popular among car buyers are Hire Purchase (HP), Personal Contract Hire (PCH), and Personal Contract Purchase (PCP), each with its own specific terms and early termination clauses. Below is a description of each contract type and how it can be ended early.

Hire Purchase

When you finance a car through a hire purchase agreement, the finance company legally owns the vehicle until you have either completed all the payments or paid off the remaining balance in full. Once you have received your settlement amount and cleared the balance within the timeframe given, the ownership will be transferred to you, and you will be free to sell the car.

It is essential to go through your contract carefully to understand the specific terms, as finance agreements have different clauses and are widely different from one another.

Personal Contract Purchase

If your car is financed through a Personal Contract Purchase, it is possible to terminate the agreement early, as long as you have paid over 50 percent of the total amount owed, including interest and accrued fees.

Due to the large final “balloon” payment typically included in PCP deals, you usually will not reach that halfway point by the middle of your term.

If you have not paid over half of the value of the contract yet, there is no reason to panic, as you can still exit the agreement early by covering the shortfall to reach the 50 percent threshold. On the other hand, it is important to understand that if you have already paid beyond the 50 percent, you will not get any money back.

You cannot legally sell the car until the finance has been fully paid off or the settlement figure is cleared. Similar to a Hire Purchase plan, this settlement amount may come with additional costs, such as early repayment charges. Once you have paid off the contract, the car becomes yours and you can sell it.

Personal Contract Hire

With a Personal Contract Hire agreement, you are essentially renting the car for an agreed period of time, rather than working towards ownership. You will pay an upfront deposit followed by fixed monthly instalments throughout the lease term.

At the end of the contract, the vehicle remains the property of the leasing provider, or lender, and you will need to return it, as there is no automatic option to purchase it.

If by the end of the contract you decide you would like to keep the car, you can ask the finance company if they are willing to sell it to you. It is important to note that the finance company is not under an obligation to sell it to you and it will depend entirely on their discretion whether they decide to sell it or not.

Positive vs. negative equity

When speaking about car finance, positive equity means your vehicle is worth more than the amount you still owe on it, giving you a financial advantage if you plan to sell or trade it in. You can use this surplus value as a deposit toward a new car or simply keep the difference for yourself.

On the other hand, negative equity occurs when the value of your car is less than your remaining finance balance. This situation is common in the early stages of a finance agreement, especially with cars that depreciate quickly. Selling a car with negative equity may require you to pay the shortfall out of pocket.

Knowing your equity position helps you plan financially, avoid unexpected costs, and decide whether it is the right time to sell, part-exchange, or pay off the loan early.

Private sale vs. dealer sale

When looking to sell a car, there are a couple of options for the sale method, private and through a dealership. There are pros and cons to both methods, and you need to decide which way is better for your needs.

Private sales can yield a higher price, but you will need to settle the finance yourself before transferring ownership. Buyers may be wary unless you can prove the finance will be cleared, making the process more complex and requiring clear communication.

Dealer sales or selling through car-buying services are typically quicker and more convenient. The dealer will usually handle the finance settlement directly with your lender, deducting the balance from the sale price. While you might get a lower offer than through a private sale, it is often worth it for the ease and reduced risk, especially if you want to part exchange or need a fast, stress-free transaction.

Impact on credit score

Depending on how and when you settle an outstanding car finance agreement, it can affect your credit score. Paying off the finance in full and on time typically has a positive impact, showing lenders you are reliable, responsible with credit and capable of managing debt.

However, ending an agreement early, especially within the first few months, might lower your score slightly, as it can be seen as an unexpected change in borrowing behaviour. Missing payments or defaulting will have a much more serious negative effect. It is always a good idea to check your credit score before and after settling any outstanding finance agreements to understand the changes and ensure your account is updated correctly with the credit reference agencies.

Sell your car with Stratstone

After learning the details about terminating an outstanding car finance agreement, you will be able to make an informed decision on whether to end your agreement early or continue until the end of its term.

If you decide to sell your vehicle, you can trust us to handle the process efficiently and guide you through it with ease.

Learn more about selling your vehicle with Stratstone, or explore additional car finance topics on our blog.

Frequently Asked Questions