Can You Sell a Car With Outstanding Finance? HP, PCP and Loans Explained

Yes, you can sell a car with outstanding finance, but if it's on hire purchase (HP) or personal contract purchase (PCP), the finance must be paid off before or at the moment of sale, because the lender owns the car until then. The simplest route is to get a settlement figure from your lender and sell to a buyer who pays that amount to the lender and the rest to you.

Can you sell a car with outstanding finance? It depends on the type

Who owns the car decides what you can do. Your agreement will say which type of finance you have.

Because the finance company owns an HP or PCP car, a buyer who pays you while the finance is still outstanding is taking a big risk. That's why buyers insist the finance is cleared at the point of sale, and why you should never sell one without settling it.

How to get a finance settlement figure

A settlement figure is the amount needed to clear your agreement in full on a specific date. You're entitled to ask for one, and you don't have to put the request in writing: many lenders let you ask through your online account or by phone.

When you settle early, the total you pay is reduced because you avoid some of the future interest. The figure is calculated to a set date, so check how long it's valid for and get a fresh one if it runs out before you sell.

Dealers and car buying services that settle finance for you will want a settlement letter: an in-date letter from your lender showing the settlement figure and your agreement reference number. Ask for this when you request the figure.

Work out your equity

Once you have the figure, compare it with your car's value:

• Positive equity: your car is worth £9,000 and the settlement figure is £7,200. The buyer pays £7,200 to your lender and £1,800 to you.
• Negative equity: your car is worth £9,000 and the settlement figure is £10,500. You need to find £1,500 to clear the finance.

These numbers are only examples. Get your own valuation and settlement figure, because both change over time.

How to sell a car on PCP or HP: your four options

1. Pay off the finance, then sell

If you can clear the settlement figure from savings, you own the car outright and can sell it to anyone, including a private buyer. Ask your lender to confirm in writing that the agreement is settled, so you can show buyers if their finance check still lists it.

2. Sell to a buyer who settles the finance for you

Dealers taking your car in part exchange, and car buying services, can usually settle the finance as part of the deal. webuyanycar says it can settle outstanding finance on your behalf. You bring an in-date settlement letter, the amount owed comes out of the sale price, and you receive any difference.

If the car is worth less than you owe, webuyanycar asks you to provide the exact shortfall so the finance can be cleared and the sale completed. Its fastest payment options may not be available when finance is being settled, so allow a little more time.

3. Sell privately, with the finance cleared at the sale

A private buyer can't safely pay you while the lender still owns the car. If you can't settle first, ask your lender whether the buyer can pay the settlement figure straight to them, with the balance coming to you. Don't hand over the car, keys or logbook until the lender confirms the agreement is settled.

4. Hand the car back with voluntary termination

If you can't sell for enough to clear the finance, the Consumer Credit Act gives you the right to end a regulated HP or PCP agreement early and return the car. This is called voluntary termination, and it turns on the 50% point:

• Once you've paid at least half of the total amount payable, you can give notice and return the car with nothing more to pay towards the finance, as long as your payments are up to date. The total includes interest and fees and, on PCP, the final balloon payment.
• If you've paid less than half, you can pay the difference up to the halfway point and then return the car.
• You must have taken reasonable care of the car. If you haven't, the lender can charge you to put that right.

Because the balloon counts towards the total, PCP drivers often don't reach the halfway point until late in the agreement. Voluntary termination doesn't apply to personal loans or leases, and it isn't a sale: you get nothing for the car. If you have positive equity, selling is usually better. Check your agreement and talk to your lender before giving notice.

Selling a PCP car near the end of the deal

At the end of a PCP agreement you can usually pay the optional final payment and keep the car, hand it back, or part-exchange it. If the car is worth more than that final payment, the difference is equity. Hand the car back and you lose it; sell or part-exchange it and the money is yours.

So before your agreement ends, ask for a settlement figure and compare it with a valuation. If you do decide to hand the car back, check the mileage limit and condition standards in your agreement first, because excess mileage and damage beyond fair wear and tear are usually charged for.

What if you owe more than the car is worth?

Negative equity is most likely early in an agreement, when the car is losing value fastest and you've repaid the least. Your options:

• Pay the shortfall when you sell, from savings.
• Keep the car for longer. Each payment reduces what you owe, and the gap usually narrows over time.
• Make a partial early settlement. Tell your lender in writing that you want to pay off part of the balance, and it will reduce what you owe.
• Use voluntary termination if you've paid at least half, or are close to it.
• Roll it into new finance when you part-exchange. Some dealers will add the shortfall to your next agreement, but you'll then pay interest on the old debt too, so treat this with care.

Selling a car on finance: step by step

1. Find your agreement and check the finance type and the lender's details.
2. Ask for a settlement figure and an in-date settlement letter.
3. Get a free car valuation to see whether you have equity.
4. Choose your route: settle and sell, part exchange, a car buying service that settles the finance, or voluntary termination.
5. Make sure the lender is paid before the car leaves you, and get written confirmation that the agreement is closed.
6. Tell DVLA you've sold the car. Our guide to the documents needed to sell a car explains how.

Buying a car? Why a finance check matters

If you're on the other side of the deal, outstanding finance is one of the main risks in buying a used car. The V5C logbook won't tell you about it, because it records the registered keeper, not who owns the car.

The law gives private buyers some protection. Citizens Advice explains that you often have the right to keep a car that still has hire purchase on it (known as good title) if you didn't know about the finance, bought it honestly as a private buyer, and were the first private buyer from the person who had the agreement. If you don't meet those conditions, you may have to chase the seller for a refund, possibly through the courts.

It's far easier to avoid the problem. A full car history check shows whether a finance agreement is recorded against the car, alongside stolen and write-off records. Run one before you hand over any money, and see our used car buying checklist for the other checks worth doing.

Your next step: get the two numbers that matter

Everything depends on two figures: what you owe and what the car is worth. Request your settlement letter today and get a free valuation, and you'll know whether you'll walk away with money or need to cover a gap. If you're weighing up a dealer deal, read part exchange vs private sale before you sign, and see how much your car is worth for what drives the price.

When you're ready to sell your car, bring your settlement letter to the appointment.