There can be a number of reasons why you want to sell a vehicle that’s on car finance. Maybe you want to upgrade to a better car, or maybe you’ve decided that you don’t need a car anymore. But buying a car on finance means you do not technically own that car until you have completed the agreement – so, what does that mean when you want to sell the car on? We explain all in this guide.
Can I sell a car I’m still paying for?
Generally, no, you can’t sell a car that you’ve bought on finance if you’re still making the repayments. This is because the car does not legally belong to you until you have paid off the full amount from your finance agreement.
To sell a car that you do not own could result in you being prosecuted for fraud. This applies to finance deals such as Hire Purchase car finance and PCP car finance. With all these finance deals, you will not own the car outright until you have made the final payment.
The exception would be if you have bought your car with a personal loan. This will mean you have initially got a loan from a bank or other lender and used that money to purchase the car. The loan is not linked to the car – it will be separate. In this case, you will own the car outright, even if you are still making the loan repayments. So, you will be able to sell the car if you wish. You will need to continue to make the monthly loan repayments though.
You will not be able to sell a car on PCH car finance, as you will never own this car outright.
How do I sell a car on finance?
If you want to sell a car that you’ve bought with a finance agreement, there are a few ways you can sell it.
You should first contact the lender and let them know you want to sell. The car legally belongs to them, so they will have to give permission for you to sell it. You can ask them for a settlement figure, to see how much you will need to pay so you can own the car outright. Once this has been agreed and paid for, you will be able to sell the car.
If you have paid more than 50% of the original agreement value, you should be able to hand the car back to the lender and close the contract. This is known as ‘voluntary termination’. You will not have to make any further payments on the car, but you will not be able to sell it as it will be given back to the lender.
If you’ve paid less than 50% of the agreement value, you should discuss your options with your lender. They may be able to take the car back and sell it themselves, in which case they can use the money from the sale to pay off some or all of what you owe. The sooner you hand the car back, the higher it will be valued, so the more money it will make in a sale. However, you will have to continue making payments until you have paid for 50% of the original value, so if the sale doesn’t make enough, you will have to continue to pay for a car you no longer own.
If you want to sell the car because you’re struggling with the repayments, read more about what to do if you can’t pay your car finance.
Can I part-exchange a car on finance?
Usually, it is possible to part-exchange a car on finance, as long as you discuss your options with the lender. As we’ve mentioned, they still legally own the car until the final payment of your agreement is made, so you cannot transfer the car to someone else without their permission.
You will need to request a settlement figure from your lender. This may involve an early termination fee and/or a final balloon payment.
You will need to determine the value of your current car and see how much you have left to pay on the finance agreement. If the car is valued more than the finance you have left to pay, you will be in positive equity. This means you can trade in your vehicle, pay off the remaining value, and use the rest to purchase your next car.
If your car is worth less than the remaining money you have to pay on the agreement, you’ll be in negative equity. You may still be able to part-exchange the car, but you may need to pay an additional lump sum and transfer the debt you owe into the new finance agreement for your new car. This will result in much higher monthly payments, as you’ll be paying for your old car and your new car. This will usually also incur higher interest rates.
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