Buying a car with outstanding finance can be risky. It's important to know what you might be getting into and how to protect yourself.
When there is car finance, the lender owns the car until full loan is paid off. This means the person selling the car isn’t legally allowed to sell it until the finance is cleared or they have permission from the finance company.
Risks of buying a vehicle with outstanding finance
Sometimes, cars with outstanding finance are sold in the used car market. If you accidentally buy one of these cars, you could end up facing serious legal and financial problems.
Repossession:
If the previous owner stops making their payments, the finance company can repossess the vehicle. By buying a car with finance owing, you risk losing the vehicle without getting any money back.
Legal title:
The seller isn’t legally allowed to sell the car if it still has finance on it. This means that even if you have paid for the car, the finance company still owns it until the debt is cleared.
Potential fraud:
People who knowingly sell cars with outstanding finance may be committing fraud. If this happens, it can be very hard to get your money.
Considering buying a car with outstanding finance privately?
Cars with outstanding finance come with high risks. If you don’t check carefully, you could accidentally purchase a car that still has finance owed on it. To protect yourself, it's important to take the following steps before going ahead:
Vehicle history check (HPI Check)
This is the most important step you can take to avoid buying a car with outstanding finance. By completing a HPI check on any vehicle you're considering, you'll be able to get the complete history of the vehicle, including:
- Whether it has outstanding finance;
- If it’s been stolen or written off;
- Its mileage history;
- Whether it has been involved in an accident; and
- How many registered keepers it’s had.
Ask the seller about the finance
If an HPI check shows that the car you're interested in still has finance on it, ask the seller directly about it. A genuine seller should be open about selling a car still on finance. If they seem hesitant or avoid answering, it could be a warning sign.
In any situation where finance is registered against the vehicle, whether the seller has disclosed it or not, it's important to ask for proof that the finance has been fully paid off. This document should clearly state that the finance has been fully paid off and that the finance company no longer has any claim or interest in the vehicle.
Contact the finance company
Before going ahead, take one final step to confirm with the finance company directly. Even if you’ve received a settlement document, calling the finance company to confirm that the vehicle is free from finance is the best way to ensure that the vehicle no longer has any claims from the finance company. This gives you peace of mind before you proceed with the purchase.
I have bought a car with outstanding finance from a dealer
If you’ve already brought a car that still has an outstanding car finance agreement, the following information could help you:
Can a dealer sell a car with outstanding finance?
A dealer is not allowed to sell cars with outstanding finance, unless they have consent from the finance company. When a car is bought on finance, the finance company legally owns the vehicle until the loan is fully repaid.
This means that the dealer cannot legally sell the car until the finance is settled. Selling a car still on finance can lead to serious consequences for the dealer.
If a dealer claims that the finance company has agreed to the sale with the finance still outstanding, it is crucial to contact the finance company directly to verify this. It is rare for a finance company to allow a vehicle to be sold before the outstanding finance has been settled, so we strongly recommend confirming this information before proceeding with the purchase.
Contact the dealer immediately
As soon as you discover that the car has outstanding finance, contact the dealer immediately and inform them of the situation. Provide them with the evidence you have, such as an HPI check that shows you have bought a car with outstanding finance.
Ask the dealer to resolve the situation as quickly as possible. The best outcome would for the dealer to pay off the outstanding finance and provide proof that it has been settled, allowing you to keep the car without any further concerns.
Contact the finance company
If the dealer is unhelpful or slow to address the issue, contact the finance company directly. Let them know that you’ve bought a car with outstanding finance from a dealer, and ask them to confirm the remaining balance and whether they have any record of the dealer’s involvement.
In some cases, the finance company may be willing to work directly with the dealer to resolve the situation and settle the outstanding finance.
Keep records of all communication
Document everything carefully. Keep detailed records of all communications with the dealer and the finance company, including emails, letters, and notes from phone calls. Be sure to write down the date and time of each call along with your notes. This documentation can be crucial if the situation escalates or if you need to take further action.
Consider returning the car
If you’re not satisfied with the dealer’s explanation, and the finance company confirms they did not authorise the dealer to sell the car to you, you have the right to return the vehicle.
Because the dealer did not disclose that they were selling a car still on finance, you should be entitled to a full refund.
Get support
If the dealership refuses to resolve the issue, you can seek free and independent help from organisations like Citizens Advice. They can offer guidance on your next steps and may assist you in drafting letters to the dealer or advise on the best course of action going forward.
Learn from the experience
To avoid similar situations in the future, always perform an HPI check or a similar vehicle history check before committing to any car purchase, even when buying from a dealer.
This will help you identify any discrepancies in the information provided by the dealer and ensure that any issues are resolved before you proceed with the purchase.
Red flags that may indicate a car could still be on finance
If you are unsure whether a car you want to buy is still under a car finance agreement, look out for these possible warning signs:
Price
Cars with outstanding finance are often sold below market value. This could be a sign that the seller is trying to offload the car quickly due to the unpaid finance, or it might indicate that the car has been written off previously and not disclosed.
Missing paperwork
Missing or incomplete documents, such as the logbook, are always a red flag when buying a car. While this doesn’t automatically mean the person you are buying from is selling a car is still on finance, or that the seller isn’t the actual owner, it’s important for your peace of mind to ensure the seller has all the relevant documents before you proceed with the purchase.
Pressure to buy the car quickly
A seller who is pushing for a quick sale or seems desperate to offload the car might be aware of outstanding finance on it. While there could be genuine reasons for wanting a quick sale, don’t be tempted to take any risks, even if the price seems like a great deal. Always complete thorough checks on the vehicle before proceeding with the purchase.
No clear explanation for selling
If the seller doesn't provide a clear or believable reason for selling the car, especially if it’s priced well below market value and has low mileage, there’s a chance that you could be buying a car that has outstanding finance.
If you find yourself unable to resolve the situation after buying a car with undisclosed finance, seeking professional legal advice may be essential.
Arrange car finance of your own
If you do manage to solve the problem you face, you may need car finance of your own. That’s where we can help. Call our friendly Sales Team on our freephone number above, or apply online.
Representative example
You could borrow £10,000 over 60 months with an initial payment of £490.66 (including £199 Admin Fee) followed by 58 monthly payments of £291.66 with a final payment of £490.66 (including optional £199 Option to Purchase Fee).
Total amount repayable will be £17,897.60.
29.3% APR, annual interest rate (fixed) 24.7%.
This example uses the representative APR. This is the rate at least 51% of customers are expected to get.
Lending is subject to status and additional affordability checks. Rates quoted are subject to change and will depend on lending amount and personal circumstances.
FAQs
Yes, you can insure a car with outstanding finance. However, the finance company is the legal owner of the car until the agreement is fully paid off. If you’re buying a car with outstanding finance, ensure the finance is settled or approved by the finance company before proceeding.
If you unknowingly purchase a car with outstanding finance, the finance company still has a legal claim on the car, which means it could be taken back. It's crucial to act quickly - contact the dealer or seller to sort it out, and if necessary, seek legal advice.
Yes, you can still buy the car. However, it is important to make sure the outstanding finance is settled before the sale is completed. This could mean paying the finance company directly or ensuring the seller settles the debt as part of the deal.
After the outstanding finance is paid off, it can take a few days to a couple of weeks for the finance company to update their records and confirm that the vehicle is clear of any debt. It's a good idea to get written confirmation once the payment has been processed.