Can you sell a car that's on finance?
Are you in the middle of a car finance agreement but want to sell your car? Whether it’s because of a lifestyle change, financial reasons, or you just want a change, you may have options. But selling a car still under finance isn’t as simple as selling one you own outright.
To help you understand the process, we’ve covered how it works for PCP and HP and what you need to consider.
Can you sell a car on finance?
You can’t sell a car on finance until the finance is settled, because the lender owns the car until you’ve fully paid off your loan. It’s illegal to sell a car without settling the finance, because you don’t have full ownership.
But, there are ways to handle this situation and still sell your car, depending on the type of finance agreement you have.
Important note: Always check your finance agreement terms and speak to your lender before making any decisions, as rules may vary.
How can I sell a car on finance?
If you want to sell a financed car, you’ll need to settle the outstanding balance first. Here’s how you can approach it:
Ask for a settlement figure – This is the total amount you need to pay to clear the finance. This figure will include any remaining payments, interest, and possible fees.
Get a car valuation – Use a free car valuation tool to check how much your car is worth.
Pay off the settlement figure – You pay the settlement figure, including any shortfall if the car is worth less than you owe. This is called negative equity.
Transfer ownership – Once the finance is settled, the car becomes legally yours and you can sell it to a private buyer or trade it in at a dealership.
How does negative equity impact selling a car?
Negative equity in car finance happens when your car is worth less than the amount you still owe on your loan. This means that if your car is worth less than the settlement figure your lender asks for, you’ll have negative equity and will need to cover the difference on top of paying the settlement figure.
If your car is worth more than the settlement figure, you’ll have positive equity and could either keep the money or put the difference towards your next car.
Important: Ensure you understand the impact of negative equity before proceeding with the sale, as you may need to find additional funds to clear the balance.
What is a settlement figure?
A settlement figure is the total amount you need to pay to clear your car finance agreement early. It’s usually made up of:
Outstanding balance – The total amount you still owe on the finance agreement, including any remaining monthly payments.
Interest – Any interest due on the remaining balance.
Fees – Some lenders may charge early repayment fees or admin fees for settling the agreement early.
Balloon payment (PCP only) – If you’re in a PCP agreement and want to end it early to sell the car, the settlement figure will include the balloon payment.
When you request a settlement figure, the lender will give you a breakdown of the amount due.
Important: It’s essential to request the exact settlement figure from your lender, as it may change due to interest or fees.
Can you sell a PCP car?
Yes, selling a car on a Personal Contract Purchase (PCP) deal is possible. Here are the steps you’d need to take:
Get a settlement figure – Contact your lender and ask for a settlement figure. With PCP, this includes the balloon payment, as well as the remaining balance, interest, and fees.
Pay the settlement figure – The buyer usually pays the lender the car’s value, but if you have negative equity, you cover the shortfall.
Sell the car – Once finance is settled, the lender transfers ownership and you can sell the car.
Important: If you have negative equity in your PCP agreement, make sure you’re prepared to cover the difference before proceeding with the sale.
Can you sell a car on HP finance?
If you’ve got a Hire Purchase (HP) agreement, the process is similar to PCP but without a balloon payment at the end. Here’s how it works:
Get a settlement figure – This will just cover the remaining balance on your loan, plus interest and fees.
Pay the settlement figure – Again, if the car’s value is higher than the settlement figure, you can keep the difference. If it’s lower, you’ll need to pay the difference.
Sell the car – Once you settle the finance, the lender transfers ownership and it becomes yours to sell.
The main difference between the two is that in a PCP deal, you have to also pay the balloon payment to settle your car finance deal early. The balloon payment is often a large sum, so the settlement figure can be much higher in PCP agreements than in HP agreements.
Important: Always make sure to speak to your lender about the exact process to follow, as different lenders may have varying policies.
How to end a car finance agreement early
There is an alternative if you want out of your current contract, and that’s voluntary termination. With voluntary termination, you can hand the car back to the lender early. However, you must have paid 50% of the total amount payable first, including the balloon payment in a PCP deal.
You can’t keep or sell the car if you choose voluntary termination, because it will still belong to the lender. Voluntary termination is just a way to return it and end your finance agreement early.
If your goal is to sell the car, you would need to go down the other route of requesting a settlement figure, pay off the remaining balance, and then proceed with selling it.
Important: You cannot sell the car if you go down the voluntary termination route, as ownership remains with the lender.
The takeaway
Selling a car under finance is possible, but you have to settle the debt first. Whether you’re on a PCP or HP agreement, knowing your settlement figure and your car’s market value will help you decide the best way to handle it. Voluntary termination is another option you can go down, if you want to end your car finance agreement completely, but you won’t own the car.
If you’re not sure what to do, speak to your finance provider or a car finance expert for advice.
Disclaimer: The information provided in this blog is for general guidance only and should not be considered as financial advice. Always seek professional advice from your finance provider or an independent expert before making any decisions regarding your car finance agreement. Car Finance 247 is not responsible for any decisions made based on the information provided. Terms and conditions may vary depending on the lender and the specific finance agreement.