When I first bought a car on finance, I didn’t really think much about what would happen if I ever needed to sell it. The idea seemed simple—just sell the car and move on. But the reality isn’t always that straightforward. If you’re in a similar situation, you might be wondering: Can you sell a car on finance?
In this article, I’ll walk you through everything you need to know about selling a car when you still owe money on it. I’ll explain the steps, the options you have, and some important details to consider before making a decision. By the end, you’ll have a clear understanding of what to do and whether it’s the right move for you.
Table of Contents
What Does It Mean to Buy a Car on Finance?
When I bought a car on finance, I entered into an agreement with a lender or a car dealership, where I agreed to make monthly payments for a set period, usually with interest. It’s often called a hire purchase (HP) agreement or a personal contract purchase (PCP) in the UK, or an auto loan in other countries.
These financing options allow you to drive a car without paying the full price upfront. Instead, you pay a deposit and then the rest of the amount is divided into manageable monthly payments. The car itself acts as collateral for the loan, meaning that if you fail to make payments, the lender can repossess the car.
Can You Sell a Car on Finance?
Yes, you can sell a car on finance, but there are important conditions to consider. It’s not as simple as selling any other car you own outright. The key issue is that you still owe money on it. Here’s how it works:
- You need to pay off the finance balance first.
- If you still owe money on the car, you cannot simply sell it without paying off the remaining loan amount. You’ll need to settle the outstanding finance balance before you can transfer ownership.
- The sale price may not be enough to clear the loan.
- In some cases, the amount you owe on the finance may be higher than what you could sell the car for. This can leave you with a remaining balance to pay off after the sale.
- The lender’s approval is necessary.
- Since the car is technically owned by the finance company until the loan is paid off, they will need to approve the sale. The process varies depending on the lender, but typically, you will need to contact them to get the settlement figure (the amount needed to pay off the loan in full).
The Process of Selling a Car on Finance
Now that we’ve established it’s possible to sell a car on finance, let’s go through the steps you’ll need to follow. I’ve broken it down into clear, manageable stages:
1. Check the Remaining Loan Balance
The first thing you’ll need to do is find out how much you still owe on the car. This includes the principal balance as well as any interest that has accumulated. Most finance agreements allow you to request a settlement figure, which tells you the exact amount you need to pay off in full to clear the loan.
Here’s an example:
| Original Loan Amount | Monthly Payment | Remaining Loan Balance | Settlement Figure |
|---|---|---|---|
| £15,000 | £300 | £10,000 | £10,500 |
In this example, I owe £10,000 on the car, but the settlement figure is £10,500 because the finance company may have added early settlement fees or interest.
2. Get the Car Valued
Next, I’ll need to find out how much my car is worth in the market. This can be done by getting a valuation from online tools, car dealerships, or through an independent appraisal. The sale price of the car will help determine whether it’s worth selling or if I should consider other options.
For example, if my car is worth £9,500 and the settlement figure is £10,500, I’m in a situation where the sale price won’t be enough to pay off the loan.
3. Selling the Car
If I decide to go ahead and sell the car, the process will involve paying off the loan first. This might require either:
- Selling the car privately and using the sale proceeds to pay off the loan.
- Trading the car in at a dealership, where the dealer will pay off the finance on my behalf (if the sale price is enough to cover the loan).
In either case, I’ll need to clear the finance before I can complete the sale. The dealer or buyer won’t be able to legally take ownership of the car until the outstanding finance is settled.
4. Paying Off the Loan
Once the sale price has been agreed, the next step is to use the proceeds to pay off the finance balance. If I’m selling privately, I’ll need to ensure the finance company receives the payment directly from the buyer or from me if I’m making up the difference.
5. Transferring Ownership
Once the finance is cleared, I can proceed with transferring ownership of the car to the new owner. This involves completing the necessary paperwork, such as the V5C registration document (in the UK), and submitting it to the appropriate authorities.
What Happens If the Sale Price Isn’t Enough to Pay Off the Loan?
Sometimes, the car might not be worth enough to cover the outstanding finance. In this situation, you’ll have a negative equity situation, meaning you owe more than the car is worth. You’ll need to make up the difference to clear the finance.
Let’s break this down with an example:
| Car’s Sale Price | Remaining Loan Balance | Shortfall to Pay Off Loan |
|---|---|---|
| £9,500 | £10,500 | £1,000 |
In this case, I’ll have to pay an additional £1,000 to the finance company to settle the loan.
Options If You Can’t Afford the Shortfall
If I find myself in a situation where I can’t afford the shortfall, I have a few options:
- Negotiate with the Finance Company Some finance companies may be willing to extend the loan term or offer a payment plan to cover the remaining balance. It’s worth contacting them to discuss potential solutions.
- Refinance the Loan Refinancing may be an option if I want to keep the car but need more time to pay off the loan. This could help me manage the shortfall and avoid selling the car for less than it’s worth.
- Return the Car (Voluntary Termination) If I’m on a hire purchase or personal contract purchase (PCP) plan, I may be able to return the car and walk away from the loan, provided I’ve paid at least 50% of the total loan amount. This is called voluntary termination, and while it doesn’t necessarily mean I’ll walk away without paying anything, it can help reduce the financial burden.
Selling a Car on Finance vs. Trading It In
If you’re wondering whether to sell the car or trade it in at a dealership, there are some key differences to keep in mind.
| Option | Pros | Cons |
|---|---|---|
| Selling Privately | – Higher potential sale price | – Takes time and effort |
| – More control over the sale process | – Need to pay off loan before transfer of ownership | |
| Trading It In | – Quicker process | – Dealership may offer less than private sale price |
| – Dealership handles loan settlement | – Less control over the final sale price |
In general, selling privately could get you a better price for the car, but trading it in is more straightforward, especially if you’re buying a new car at the same time.
Should You Sell a Car on Finance?
Ultimately, whether or not you should sell a car on finance depends on your personal situation. If the car is worth more than the finance balance, and you’re ready to pay off any remaining loan amount, selling could be a good option. On the other hand, if the car isn’t worth enough to clear the loan, it might be better to hold onto the car until you can pay off more of the loan or explore other options like refinancing.
It’s also important to consider the emotional and financial implications of selling the car. If you rely on the vehicle for your daily commute, for instance, selling it might not be the best move unless you have an alternative form of transportation lined up.
Conclusion
Selling a car on finance is possible, but it requires a careful understanding of the remaining loan balance and the sale price. It’s not a process that can be rushed, as you’ll need to ensure the loan is settled before the car is transferred to a new owner. By following the steps outlined in this article and weighing the pros and cons of different options, you can make an informed decision about whether selling your car on finance is the right move for you.
