How to sell a car with outstanding finance in the UK

What kind of finance do you have?

• Hire purchase (HP). You pay a deposit and monthly instalments, and the car is yours after the final payment. Until then the finance company owns it.
• Personal contract purchase (PCP). Lower monthly payments, then an optional large final payment called the balloon. The finance company owns the car until it's all paid.
• Personal contract hire (PCH), or leasing. You're renting the car, so you can't sell it. Talk to the leasing company about ending the contract early.
• A personal loan. If you bought the car with an unsecured bank loan, you own it. Sell it whenever you like and keep repaying the loan.
• A logbook loan. This is a loan secured against a car you already owned, using a bill of sale. The lender has a legal claim on the car until you repay it.

Why you can't just sell it

With HP, PCP and logbook loans, the lender has a legal interest in the car. Selling without paying off the finance means selling something you don't fully own. Outstanding finance also shows on every vehicle history check, so a buyer will find it. The agreement has to be cleared as part of the sale.

Step 1: get your settlement figure

Ask your lender for a settlement figure. The Consumer Credit Act gives you the right to one, and most lenders show it in your online account or will give it to you by phone or email. It tells you exactly what's needed to pay off the agreement on a particular date. Settling early usually cuts the interest you pay.

Settlement figures only last a short time, so get a new one close to the date you sell.

Step 2: compare it with the car's value

Get a valuation, then look at the two numbers.

• If the car is worth more than the settlement figure, you have positive equity. Once the lender is paid, the difference is yours.
• If the car is worth less, you have negative equity. You'll need to pay the shortfall yourself so the lender gets the full amount.

Step 3: settle and sell

With a trade buyer, the settlement can usually be handled as part of the sale. Ask how they do it before you agree. You'll get confirmation from the lender once the agreement is closed.

A private sale is harder. Most private buyers won't pay for a car with finance on it, so you'd usually need to clear the finance first. That means finding the money up front, or trusting the buyer to pay the lender directly.

Voluntary termination

If you have a regulated HP or PCP agreement and you've paid at least half the total amount payable (including interest and fees, as set out in your agreement), the Consumer Credit Act lets you end the agreement and hand the car back. This is called voluntary termination.

It can be the best choice if you're in negative equity, especially on PCP, where the balloon payment can leave you owing far more than the car is worth. The car needs to be in reasonable condition, allowing for fair wear and tear. Write to your lender and ask for your voluntary termination figure and how their process works.

Coming to the end of a PCP deal

At the end of PCP you can pay the balloon and keep the car, hand it back, or part-exchange it. If the car is worth more than the balloon, selling it and keeping the difference may be better than handing it back. Get a valuation a couple of months before the end so you have time to decide.