Today, virtually all new cars (and almost 20% of used cars) are bought on finance. This can be a convenient way to cover the cost of a new or used motor if you don’t have the funds to buy a car with cash.
In this guide, we will explain how to sell your car with outstanding finance. Our step-by-step guide clarifies the process to follow when selling a vehicle that is subject to a finance agreement, from obtaining a settlement figure, to settling the outstanding finance and completing the sale.
It is important to note that when we refer to ‘finance’, this is not the same as ‘leasing’. You cannot usually sell a leased car. At the end of a lease period, you may be expected to return the car to the lender – or in some cases, they may agree to extend your lease.
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Can you sell a car with finance?
Yes, you can usually sell a car that is subject to a finance agreement, if you have outstanding Personal Contract Purchase (PCP) or Hire Purchase (HP) finance. However, this can be quite a tricky process.
Before we clarify the steps to follow, it is important to understand the distinction between PCP and HP finance:
PCP vs HP: What’s the difference?
The main difference between PCP and HP finance agreements is what happens when you reach the end of the contract.
When you come to the end of a HP deal, you legally own the car because you’ve paid off its entire value. Once you’ve made this payment, you can then go on to sell your car.
However, with a PCP agreement, you only pay some of the vehicle’s total value throughout the contract. Therefore, at the end of a PCP agreement, if you wish to own the car, you must also make a ‘balloon payment’ (a lump sum covering the remainder of the vehicle’s value).
How to sell a car on finance (step-by-step)
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Get a settlement letter - Contact your finance provider to let them know you want to sell the car. You need to do this because they still legally own the car.
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Request a settlement figure - If you have paid off more than 50% of the total amount (including the deposit, along with any fees and interest), you can usually return the car and close the contract through a process called ‘voluntary termination’.
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If you haven’t yet paid off 50%, you’ll need to speak to the provider. They may allow you to return the car so they can sell it - and they will credit it back against the amount left to pay. If not, you’ll have to continue making monthly payments until you have paid off at least half the amount. The sooner you make these payments, the less interest you’ll have to pay.
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Prepare your car - Make sure you have a receipt of the written settlement and thfen prepare your car for resale. Ensure you have the following documents: V5C logbook, service history, and MOT certificates. Next, you can physically prepare your car. This includes retrieving the spare key, cleaning your car and carrying out any necessary repairs.
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Get an offer - To get a quote from webuyanycar, simply enter your reg number into our free car valuation tool to get a quote in less than 30 seconds. You can also make an appointment at any of our 500+ UK branches. If you are selling to a dealership or a private buyer, you’ll need to negotiate until you reach a figure that you are both happy with.
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Confirm the sale - If you want to sell to webuyanycar, simply drive to your appointment; our buyer will inspect your car and its documents before confirming your valuation.
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Settle the outstanding finance - webuyanycar can settle any outstanding finance on your behalf. If you want us to do this, you’ll just need to bring an in-date settlement letter to your appointment. However, some dealers (and virtually all private buyers) will ask you to do this yourself through your car finance provider.
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Complete the sale - The car is now yours to sell. If you’re selling to webuyanycar, our buyer will assist with the paperwork.
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Receive the surplus - If your car’s value is higher than the balance of the outstanding finance, you’ll receive the surplus. With webuyanycar, you may receive this instantly or it could take up to 4 working days to complete the transfer, depending on your payment preferences.
Settling your finance agreement
You can settle your finance agreement independently or with the help of a car dealer. If you choose to settle yourself, you’ll need to consult your finance company.
Working with a car dealer (or a car buying service, such as webuyanycar) can help to make the process easier. Just remember, you’ll need to obtain an in-date settlement letter beforehand.
Who owns the vehicle?
With a PCP or HP agreement, the registered keeper on the car’s V5C logbook will be you, yet legally, the owner is the finance company.
Positive vs negative equity
If your car’s current value is higher than the resettlement figure, this means you’re in positive equity. However, if your resettlement figure is higher than the car’s valuation, you’re in negative equity.
If you have a PCP deal, you may have agreed on a Guaranteed Minimum Future Value (GMFV) meaning your car’s value won’t dip below a specific figure. Check this figure to see if you’re still in positive equity.
Avoiding negative equity
You can avoid negative equity by considering your car’s valuation, your repayments and your financing agreement.
If your car depreciates in value faster than expected, you may find yourself in negative equity. This can be avoided if you have a GMFV, as you should then break even.
In terms of your repayments, if you have a long-term finance arrangement, you will probably have to pay more due to compound interest. To avoid negative equity, try and make down payments or increase your monthly payments, as this will help you avoid interest.
Finally, if you put down a larger deposit, this will mean you’ll start with more equity.