Yes, it’s entirely feasible to sell a car on finance, which is a common necessity for drivers looking to unlock equity tied up in their vehicle. Whether it’s a PCP or HP agreement, car finance is prevalent, offering an accessible route to purchasing both new and used vehicles. While car leasing doesn’t fall under the term ‘finance,’ selling a financed car is permissible.

In the UK, a significant majority of cars, including both new and used, are purchased through finance agreements. The average new car finance debt is approximately £25,000, with the total borrowed amounting to nearly £18 billion nationwide. Given the prominence of car financing in the market, understanding its implications when selling your car is crucial.

Despite this, many are unaware that they can sell their financed car, even before completing all contracted payments. However, it’s essential to adhere to the proper procedures to avoid violating the terms of your agreement.

Can you sell a car on finance?

Selling a car on HP and PCP finance, even with outstanding payments, is permissible. However, leasing a car doesn’t grant ownership, making it ineligible for sale.

Finance Type : 

• PCP : Yes, a deposit is required. The car is owned by the finance company unless a final balloon payment is made. It can be sold on HeresACar, subject to finance settlement.
• HP : Yes, a deposit is required. The finance company owns the car until the finance is fully paid off. It can be sold on HeresACar. subject to finance settlement.

In HP agreements, the total debt is divided into equal monthly installments. PCP involves deferring a substantial portion of the debt to the contractor’s end, often paid as a ‘balloon payment.’

PCP is highly popular, accounting for over 90% of new car purchases in the UK in 2022. Its appeal lies in its seemingly favourable terms : lower deposit requirements, reduced monthly payments, and sometimes shorter repayment terms.

However, PCP contracts typically come with mileage limits, potentially leading to additional charges for excess wear and tear at the contract’s conclusion.

Voluntary termination

Voluntary termination is a consumer right enabling you to terminate a finance agreement prematurely. If you’re financing the car as an individual and have paid at least 50% of the Total Amount Payable (inclusive of the deposit, fees, and interest), you’re entitled to voluntary termination.

To initiate voluntary termination, notify your financing company accordingly. It’s important to distinguish voluntary termination from voluntary surrender, which would entail ongoing payments.

During the voluntary termination process, your company might attempt to levy charges for wear and tear, excess mileage, and other additional fees. However, you should be able to return the car, conclude the agreement, and undergo a documented inspection without additional paperwork or payments.

What if I have outstanding finance?

You can sell your car even if there’s outstanding finance, provided you’ve obtained a settlement letter from your lending company. If a dealer offers to settle the finance directly with your company or through you (with mutual agreement), you can proceed with the sale.

However, if you fail to receive an offer that covers the remaining finance and still wish to sell, you’ll be responsible for covering the shortfall.

Typically, most financing agreements result in ‘negative equity’ for at least half of the contract duration. Initially, cars experience rapid depreciation, but this slows down over time. Eventually, your payments might catch up, and you’ll transition into positive equity.

Process for selling a car on finance

Step 1 : Obtain a settlement letter

Contact your finance provider to inform them of your intention to sell your car and request a settlement letter. It’s crucial to ensure that your lender permits sales and to check for any early settlement fees mentioned in your contract.

Note : Settlement figures provided by financial institutions come with an expiration date. If you don’t sell your car before this date, you’ll need to request a new settlement figure.

Step 2 : Evaluate your car’s worth

To sell your car, you or your buyer must clear the outstanding finance. Therefore, it’s essential to assess whether your car can fetch enough in a sale to cover the finance.

Step 3 : Prepare your car

Upon receiving the written settlement figure from your lender, follow this pre-sale checklist to enhance your car’s appeal and secure offers close to its full valuation : 

Documents : 

• V5C logbook document for proof of ownership
• Service history for better offers
• MOT certificates for proof of roadworthiness

Car preparation : 

• Spare key to maximise valuation
• Thorough cleaning for a spotless appearance
• Address minor repairs to avoid decreased offers during inspection

Step 4 : Obtain an offer

If selling through HeresACar, upload your car details for the daily online sale and await the best offer. If selling to an instant car-buying company or dealer, follow their process, ensuring they’re aware of the outstanding finance.

Step 5 : Confirm the sale

If selling to an instant car-buying company or dealer, they may inspect your car and documents in person before releasing funds to settle the finance and conclude the sale. Alternatively, if selling through HeresACar, the dealership representative will conduct a final check before taking possession.

Ensure you have the settlement letter and other essential documents listed in step three.

Step 6 : Settle the outstanding finance

The process of settling the outstanding finance varies. Some car buyers settle directly with your finance company, while others may require you to settle independently via phone or online banking. Discuss the process with both your finance company and the car buyer.

Step 7 : Complete the sale

With the outstanding finance settled, complete the necessary paperwork with the buyer (dealership or marketplace) to finalise the sale of your car.

Step 8 : Receive the surplus

If the sale value exceeds the outstanding finance, you’ll receive the surplus from the buyer after the sale’s completion. Note that funds release times may vary.

Step 9 : Provide feedback to your lender

Inform your lender of your decision to sell your car, citing reasons such as upgrading to a newer model or financial difficulties. Lenders are usually understanding and may offer assistance in managing payments or arranging alternative repayment schedules.