Can You Sell a Car on Finance? What You Need to Know
Selling a car that’s still under a finance agreement might seem complicated, but it’s more common than you think. Whether you need to upgrade, downsize, or simply can’t keep up with payments, it is possible to sell a financed car—but there are some important steps and considerations to keep in mind. This guide will walk you through the process and explain your options.
How Does Car Finance Affect Selling?
When you finance a car, the lender technically owns the vehicle until the finance agreement is fully paid off. This means you can’t legally sell the car outright until the outstanding finance is settled. However, there are ways to navigate this situation.
Steps to Selling a Car on Finance
- Check the Type of Finance Agreement
- Hire Purchase (HP): With HP, you’re paying off the car in instalments, and ownership only transfers to you after the final payment.
- Personal Contract Purchase (PCP): Similar to HP, but with a balloon payment at the end if you want to own the car.
- Personal Loan: If you used a personal loan to buy the car, you already own it, so selling is straightforward.
- Knowing your agreement type will determine the steps you need to take.
- Contact Your Lender
- Inform your finance provider that you want to sell the car. They will provide you with a settlement figure, which is the amount required to pay off the remaining balance of your agreement.
- The settlement figure usually includes the remaining loan balance and any early repayment fees.
- Compare the Car’s Value to the Settlement Figure
- Use online valuation tools or visit local dealerships to find out how much your car is worth.
- If the car’s value is higher than the settlement figure, you can use the difference (equity) as part of your next purchase or keep it as cash.
- If the car’s value is lower than the settlement figure, you’ll need to pay the difference out of pocket.
- Pay Off the Finance
- Once you’ve agreed to sell the car, the proceeds from the sale can be used to pay off the finance. Any shortfall must be covered by you.
- Most buyers (including dealerships) will only proceed once the finance is cleared and you can provide proof.
- Transfer Ownership
- Once the finance is settled, you can transfer the car’s ownership to the new buyer. Be sure to complete all necessary paperwork to avoid complications.
Selling to a Dealer or Third Party
- Part-Exchange with a Dealership
- Many dealerships will handle the settlement of your car finance as part of a part-exchange deal for a new vehicle. They’ll pay off your remaining balance and deduct it from the value of your trade-in.
- Sell to an Online Buyer
- Online car-buying services often offer to settle outstanding finance directly. They’ll value your car, pay off the balance to the lender, and provide you with any equity left over.
- Private Sale
- Selling privately may get you a better price, but most private buyers won’t purchase a car with outstanding finance. You’ll need to pay off the finance first and obtain a confirmation letter from the lender.
Key Considerations
- Early Repayment Fees:
- Check your finance agreement for any fees associated with paying off your loan early.
- Negative Equity:
- If your car is worth less than the settlement figure, you’ll need to cover the difference. This is common in the early stages of finance agreements.
- Proof of Settlement:
- Always ensure you get a confirmation letter from your lender stating the finance has been cleared. Buyers will require this for peace of mind.
- Legal Obligations:
- Selling a car with outstanding finance without disclosing it is illegal. Always be transparent with potential buyers or dealers.
Final Thoughts
Selling a car on finance is entirely possible, but it requires careful planning and communication with your lender. Whether you choose to part-exchange, sell privately, or use an online car-buying service, the key is ensuring the finance is fully settled before completing the sale.For more advice or assistance with car finance options, contact Carloans 365. We’re here to help make your car finance journey smooth and stress-free.