Selling a Car with Outstanding Finance: Legal Guide | Hexham

Keywords: selling car with finance, outstanding car finance UK, PCP settlement figure, HP early termination, positive negative equity, voluntary termination 50% rule, car finance settlement process, selling financed car legally, dealer finance settlement, car finance fraud UK

Selling a Car with Outstanding Finance: The Legal Rules

Got a car on finance? Want to sell it before the agreement ends? You're asking the right questions. Technically no, you can't sell it. Legally, the finance company owns the car until you settle the outstanding balance. But in reality, yes—dealers handle this daily by settling finance as part of the purchase.

What you CANNOT do: sell privately without settling finance first. That's fraud. What you CAN do: get a settlement figure, pay it off (or have a dealer pay it), then complete the sale legally. This guide explains PCP vs HP vs PCH rules, positive/negative equity, voluntary termination, and how dealers settle finance.

Fraud warning: Selling a financed car without telling the buyer = criminal fraud. You don't own it. The finance company does. Penalties: prosecution, unlimited fine, criminal record. Always settle finance BEFORE selling privately.

Is It Legal to Sell a Car with Outstanding Finance?

Short answer: Only after settling the finance. Until then, the finance company is the legal owner—not you.

The legal position:

• PCP/HP finance: Car belongs to finance company until final payment made (including balloon payment on PCP)
• PCH (lease): You never own it—can't sell at any point
• Personal loan: You own car from day one—can sell whenever, but still owe loan to bank

Two legal routes to sell:

Route 1 (Dealer settlement): Dealer pays off finance company directly as part of purchase, then pays you any surplus
Route 2 (You settle first): You request settlement figure, pay it yourself, gain legal ownership, then sell

What's illegal: Selling privately to someone without disclosing outstanding finance OR without settling it first. That's fraud.

Finance Types: PCP vs HP vs PCH vs Personal Loan

1. Personal Contract Purchase (PCP)

How it works: Deposit + fixed monthly payments (24-48 months) covering depreciation. At end: return car, pay balloon payment to keep it, or part-exchange.

Ownership: Finance company owns car until balloon payment made
To sell early: Request settlement figure (remaining payments + balloon + fees), pay it, then sell
Settlement figure includes: All remaining monthly payments, balloon payment (usually 40-50% of original car value), interest, admin fees

PCP example:

Car: £25,000 Ford Focus
Deposit: £2,500
Monthly: £285 x 48 months = £13,680
Balloon: £11,000
Total cost to own: £27,180

If selling after 24 months: Settlement figure = 24 remaining months (£6,840) + balloon (£11,000) + fees (~£200) = £18,040 owed

Car worth £16,000: Negative equity £2,040 (you pay shortfall)
Car worth £20,000: Positive equity £1,960 (you pocket surplus after settlement)

2. Hire Purchase (HP)

How it works: Deposit + fixed monthly payments (12-60 months) covering full car cost. No balloon payment. You own car after final payment + £100-£200 option fee.

Ownership: Finance company owns car until final payment
To sell early: Request settlement figure (remaining payments + fees), pay it, then sell
Settlement figure includes: All remaining monthly payments, interest, early exit fee (~1% of balance, or 0.5% if <12 months left)

3. Personal Contract Hire (PCH / Lease)

How it works: Long-term rental. Initial payment + fixed monthly payments. Return car at end. No ownership option (unless lease company agrees to sell at end—rare).

Ownership: Lease company owns car throughout. You never own it.
Can you sell?: No. It's not yours to sell. Early termination penalties are severe (often 50-100% of remaining payments).

4. Personal Loan

How it works: Unsecured bank loan used to buy car. Car is yours from day one. Loan is separate—no link to car ownership.

Ownership: You own car immediately
Can you sell?: Yes, anytime. But you still owe the loan—must keep making payments or pay off balance.

Finance Type Comparison

Positive vs Negative Equity Explained

Understanding equity determines whether selling is financially viable.

Positive Equity (Good)

Definition: Car's current value EXCEEDS settlement figure
Example: Car worth £15,000, settlement figure £11,000 = £4,000 positive equity
What happens: Dealer pays £15,000 to you, you pay £11,000 to finance company, you keep £4,000 surplus

Negative Equity (Bad)

Definition: Car's current value LESS THAN settlement figure
Example: Car worth £8,000, settlement figure £11,000 = £3,000 negative equity
What happens: Dealer pays £8,000, but finance company wants £11,000. You must pay £3,000 shortfall.

When you're in negative equity:

• Option 1: Pay the shortfall yourself (£3,000 cash in example above)
• Option 2: Wait longer—keep making payments until equity improves
• Option 3: Voluntary termination if you've paid 50%+ (see below)
• What NOT to do: Roll negative equity into new finance deal (compounds problem)

Why negative equity happens:

• Early in PCP: You've only paid depreciation, not capital—balloon payment still looms large
• Rapid depreciation: First 3 years see steepest value drops (40-50% typical)
• Excess mileage: Over agreed mileage = lower car value but same settlement figure
• Damage: Reduces car value but doesn't reduce what you owe

How to calculate your equity:

Step 1: Get settlement figure from finance company (valid 10 days)
Step 2: Get realistic car valuation (use dealer quotes, not online valuations)
Step 3: Subtract settlement from value

Positive number: You're in positive equity—selling is profitable
Negative number: You're in negative equity—you'll pay to exit

Settlement Process: Step-by-Step

Step 1: Request settlement figure from finance company

How: Call finance company or log into online account
Timeline: Legally required within 12 working days, usually 2-5 days
Valid for: Usually 10 days (check letter for expiry date)
What's included: Remaining payments + balloon (PCP) + interest + early exit fees

Step 2: Get accurate car valuation

Best method: Get quotes from multiple dealers—they'll give realistic trade prices
Avoid: Online valuations (optimistic, assume clean condition)
Tip: Be honest about damage, mileage, service history—affects quote accuracy

Step 3: Compare figures to determine equity

If positive equity: Proceed with sale—you'll make money
If negative equity: Decide if you can afford shortfall or should wait longer

Step 4: Choose settlement method

Method A (Dealer settles): Dealer pays finance company directly, then pays you surplus. Most common. Zero hassle.
Method B (You settle first): You pay finance company settlement figure yourself (bank transfer/phone), gain legal ownership, then sell. More control but requires upfront cash.

Step 5: Complete sale + paperwork

Required documents: Settlement letter, V5C logbook, service history, MOT certificate, all keys
DVLA notification: Dealer handles this when they settle finance—check it's done
Payment: Surplus paid after finance settled (usually same day with dealers)

Voluntary Termination (50% Rule)

Consumer Credit Act 1974, Section 99: You can terminate PCP/HP agreements early once you've paid 50% of total amount (including balloon on PCP).

How it works:

PCP: Once you've paid 50% of (deposit + all monthly payments + balloon payment + fees), you can return car with no further payments
HP: Once you've paid 50% of (deposit + all monthly payments + fees), you can return car

Voluntary termination example:

PCP: £25,000 car, £2,500 deposit, £285/month x 48, £11,000 balloon = £27,180 total
50% threshold: £13,590
When you hit 50%: After 39 monthly payments (£2,500 deposit + 39 x £285 = £13,615)

What happens: Return car to finance company. No further payments. No surplus money back. Done.

Conditions for voluntary termination:

• Paid 50%+ of total: Must have reached threshold (including balloon on PCP)
• Car in good condition: Fair wear and tear OK, but damage charges apply
• Within mileage: Excess mileage charges still apply
• No arrears: Must be up-to-date with payments

Voluntary termination vs voluntary surrender:

Termination (50% rule): Legal right under Consumer Credit Act. Return car, no further payments. Won't harm credit score.
Surrender (giving up early): Return car before 50% paid. Still owe remaining balance. Finance company sells car, you pay shortfall. WILL harm credit score for 6 years.

When to use voluntary termination: When in negative equity, can't afford shortfall, and have paid 50%+. Clean exit with no debt.

Dealer Settlement: How We Handle It

Most dealers (including us) handle finance settlement as part of the purchase. Here's our process:

Step 1: You provide settlement letter

Get settlement figure from finance company (must be current, valid 10 days). Bring letter to collection.

Step 2: We quote based on car's actual value

We value car independently (photos, condition, mileage). Our quote is what the CAR is worth—not influenced by what you owe.

Step 3: We calculate equity

Example: Car worth £10,000, settlement £7,500 = £2,500 surplus to you
Or: Car worth £8,000, settlement £10,000 = £2,000 shortfall (you pay us)

Step 4: We pay finance company directly

We send settlement amount directly to finance company (bank transfer, same day). You don't handle the transaction.

Step 5: We pay you surplus (or you pay shortfall)

Positive equity: We pay you surplus immediately (bank transfer or cash)
Negative equity: You pay us shortfall at collection (bank transfer or cash)

Why use dealer settlement?

• Zero hassle: We handle everything—you don't contact finance company
• Same-day completion: Finance settled + car collected + surplus paid in one visit
• No upfront cash needed: You don't pay settlement yourself—we do
• Clean paperwork: DVLA notification, V5C transfer handled correctly

Common Questions

Can I sell privately with outstanding finance?

Only AFTER you settle finance yourself. You must pay settlement figure, gain legal ownership, THEN sell. Selling before settlement = fraud.

What if buyer finds out after purchase?

Finance company can repossess car from buyer (they're legal owner). Buyer can sue you for fraud. Criminal charges possible. Don't do this.

Does early settlement hurt credit score?

No. Paying off finance early is fine. Voluntary termination shows on credit file but won't harm score. Voluntary surrender (before 50%) WILL harm score.

Can I negotiate settlement figure?

Rarely. Settlement figures are contractual. Early exit fees are usually 1% of balance (or 0.5% if <12 months left). Some finance companies waive fees if you refinance with them.

Get quote + settlement handled same day

Bring settlement letter. We value car. We pay finance company directly. You get surplus (or pay shortfall) same day. Simple.

Get valuation →