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Car finance is an increasingly popular option for drivers in the UK. Between October 2021 and 2022, more than 2,226,000 cars were bought on finance in the UK — a 7% increase on the previous year.
Unlike car subscriptions — which tend to be short-term and flexible — car financing ties you into a contract that lasts longer than you may want to keep the car. So if you find yourself in this position, can you sell your finance car?
In this article, you’ll learn:
You can only sell a car with outstanding finance if you have permission from the car owner (i.e. your finance company). This includes both hire purchase (HP) and personal contract purchase (PCP) finance.
While it can be done, selling a financed car isn’t as straightforward as selling a car you own outright. As well as getting permission from the lender, you’ll also need to pay off the outstanding finance, also known as the settlement figure.
Unless your car is in negative equity, you can usually pay this using the proceeds from your sold car.
It’s illegal to sell a financed car if you don’t have permission from the car finance company. Most lenders are happy to offer settlement terms as long as you follow the right processes. So you can often sell your financed car safely, legally, and even profitably.
But if you try to sell a financed car without paying it off, or without getting formal agreement from your lender, the lender and buyer may take legal action against you.
With both HP and PCP, the car finance company owns the car until:
When you buy a car on finance, each payment you make goes towards ownership of the car. Think of it like a mortgage: you make regular payments to build up equity in the house, but you don’t technically own it until you’ve made the final payment.
The car finance company must agree to you ending your hire purchase agreement early before you can sell your HP financed car. You can do this by paying off any outstanding finance on the car (or the settlement figure) plus an early exit fee if applicable. You can pay this when you sell the car.
If you don’t want the car any more but you don’t necessarily want to sell it, the hire purchase company may let you return the car if:
Like a HP agreement, a PCP finance contract can only be amended or ended with the agreement of the finance company. The options for ending your contract are the same as with HP:
One of the benefits of PCP is that your monthly payments are typically lower than with a hire purchase agreement, due to the balloon payment at the end of the contract.
If you decide not to purchase the car outright at the end of your contract, you can simply return it to the finance company, without the hassle of selling your financed car.
If you’ve bought your car with a personal loan, this works differently to selling a car that is financed. You own the car outright, so there are no restrictions on selling your car.
A car is in positive equity if it’s worth more than the settlement figure. You’ll make more from selling the car than you pay in settlement to the finance company.
If your car is worth less than the settlement price, it’s said to be in negative equity. For example, if your car is worth £2,000, but the settlement amount is £2,200, you’ll need to pay the lender an additional £200 on top of the proceeds from the car sale to settle the finance. So selling a car with negative equity isn’t always the best option.
To find out whether your car is in positive or negative equity, check the Guaranteed Minimum Future Value (GMFV) in your car finance contract against your debt settlement sum.
GMFV, which stands for Guaranteed Minimum Future Value, is a key term associated with car financing. Essentially, GMFV refers to the estimated value of a car at the end of a finance agreement, typically a Personal Contract Purchase (PCP). This value represents the final payment you would need to make to take full ownership of the car at the conclusion of the contract. The calculation of GMFV takes into consideration several factors.
This includes the specific model of the car being purchased, the term length of the contract, the anticipated condition of the vehicle at the end of the term, and the agreed upon annual mileage limit. Thus, GMFV provides a financial benchmark for buyers to consider when looking into various vehicle financing options.
If you’re considering selling your financed car, here are the steps you need to take to do so legally without breaching your contract.
First, check your contract and find out what your options are for early termination. Some lenders may not allow you to end the contract without returning the car, in which case you won’t be able to sell it.
Assuming there’s scope to sell your financed car, email the lender and ask for a settlement letter. This will tell you how much you’re required to pay to settle the outstanding finance.
Don’t look for a buyer or list your car before you have a settlement letter from the finance company.
Use a free valuation tool like Motorway’s Car Value Tracker to see how much you can expect to get for your car when you sell it.
This helps you calculate how much profit you’ll have once the outstanding finance is paid off, and determine when’s the best time to sell your financed car.
Make sure you have all the relevant documents for your car, including:
Make sure your car is clean and presentable before you list it, and take care of any minor repairs.
Decide how and where you’re going to sell your car. Options include:
Part exchange can be tricky when selling a financed car, as you need to make sure you get enough cash to pay off any outstanding finance. Private buyers may pay the most, but you’ll have to do a lot of legwork to find the right buyer.
Selling online is fast and hassle-free, and you can get an excellent price when you sell with Motorway.co.uk. They put your car in front of 5,000+ dealers, who bid to buy your car for the best price. It’s less hassle than selling to a private buyer, and they’re used to dealing with financed cars.
Use the proceeds from your car sale to pay the amount you owe on your outstanding finance agreement. Some buyers (particularly dealers) may deal directly with your lender to ensure the finance is paid off. Others will send you the cash and leave you to settle the outstanding debt with your finance company.
In most cases, you won’t receive any surplus payment until the finance has been settled. So it’s in your interests to settle this and finalise the sale as quickly as possible.
If you’re owed any additional money following the finance settlement, the buyer will transfer it to you following completion of the car sale.
Providing you meet all the requirements of your lender, you can sell your car to whoever you like. This includes a car dealer. A dealer will want to know about your circumstances — including the fact that the car is financed — before they buy it from you.
A dealer may communicate with your finance company on your behalf, which can make the whole transaction easier.
You can cancel your car finance agreement within 14 days of signing it. This is known as the cooling off period. However, after 14 days, the contract is binding and you won’t be able to cancel it.
Car subscriptions are much more flexible than financing a car. Car subscriptions can be cancelled at any time with just a month’s notice, and you won’t need to worry about early exit fees, interest charges, or selling your car. You can simply hand it back when you've finished driving it. Find out how much a car subscription costs in the UK.
If you’re not sure that selling your financed car is the best option (if it’s in negative equity, for example), here are some alternatives to selling a car that is financed.
The most popular alternative to selling your financed car is returning it to the lender. If you’re struggling to make your monthly payments, this can be preferable to selling your financed car, especially if you’re in negative equity.
Returning the car means you won’t be required to pay off the outstanding finance, though you may be expected to pay up to 50% of the finance value, depending on your contract terms.
If you believe you could get a good return when you sell your car — for example, if you’re selling an electric car that’s currently in high demand — you may want to continue paying off your car. This is often a good idea if you’re nearing the end of your PCP or HP contract, as you’ll avoid any early exit penalties.
Not all contracts have a voluntary termination clause, but if you do, you can terminate the contract provided you’ve paid off at least half the contract value. This doesn’t usually affect your credit score.
Transferring ownership of a car with outstanding finance isn’t usually allowed. It’s very rare that a lender will allow you to transfer your HP or PCP contract to another person. They conduct specific credit checks on the driver(s) to ensure they can afford the repayments. That’s why you’re normally required to settle your finance agreement rather than transferring it to someone else.
In some cases, lenders may allow another person (such as a parent) to take on a finance agreement if they’ve acted as a guarantor.
Looking for a more flexible way to drive? Car subscriptions allow you to drive the car you want with no long-term contract. That means you won’t have to worry about finding a buyer or settling any outstanding finance.
There are car subscriptions to suit every budget. See the cheapest cars on subscription and a selection of luxury car subscriptions for more information.
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