Selling a financed used car.

Finance Settlements and Staying Within the Law.

If you want to sell your car but have money outstanding from a finance agreement, you’ll need to take some important steps to stay safe and within the law. Generally, you’re not entitled to sell your car privately without clearing the finance first, but there are a few exceptions.

Below are the methods to selling a car and steps required to complete each process:
illustration from The Used Car Guy outlining the steps required to stay legal when selling a used car with outstanding finance

Selling a Financed Car Privately

Begin by contacting your finance company and requesting a settlement figure. This is an amount of money that needs to be paid to the finance company before you are legally allowed to sell your car. The finance company are obliged to send you an early settlement offer that usually remains active for 14 days. The offer consists of the outstanding balance under the agreement minus any interest charges. This is calculated via the number of monthly instalments remaining.

Once you receive your remaining finance figure you have the right to pay off the balance and own the car outright. At this stage, you are set to sell your car privately.
Don’t have the money to pay off the vehicle?

You cannot sell the car until you own it. Your options include:

  • Borrowing from family/friends to settle the agreement
  • Obtaining a short-term bank loan
  • Using a credit card (check this article for how to avoid any interest charges)

Remember, if you have a buyer for your car the additional loan to settle the finance will be just a few days.
Another option is the ask the private car buyer to settle the finance on your behalf and pay you the difference. Be present and connect your finance rep with the car buyer. They can settle the outstanding finance on the phone via a credit/debit card or via your online account should you have one.

Note – be 100% sure the finance has been settled and you have a letter of proof prior to releasing the car to the new owner.

Selling a car to a dealership with outstanding finance

Virtually all dealers have the facility to buy your car from you with outstanding finance. The dealer will run a car check before buying the car from you and obtain the details of the finance company whom the money is owed to. The dealership will

  • Value your car
  • Make you an offer
  • Pay the finance company their dues
  • Provide you with the difference between the amount outstanding and the purchase price


Selling a car on finance to a car buying service

Although you’ll be offered a trade to below-trade price for your car a car buying service is a simple way to sell a financed car. All car buyer’s services will know if a car has money outstanding. You need to obtain your settle figure and letter and take it with you when selling your car. The car buyers service will settle the finance and pay the difference to you via a bank transfer, note – there is likely to be a fee of between £50 and £100 when selling to a car buying service.
simple image of a used car that belongs to a finance company in the UK

Negative equity

Much like pockets of the housing market, there are many used cars that hold negative equity. Simply put, negative equity is where the money outstanding on a car is greater than its value.

Ford Focus, valued at £4,250.

Finance outstanding, £5,250

Negative equity, £1,000

This means you’ll need to pay the additional £1,000 before the car is paid off and you become the legal owner.

If you are in a negative equity dilemma your best route to a sale is privately. The private sale is certain to fetch you the best price and can often be the difference between receiving money or having to pay it out.

In the above example the Ford Focus was valued at £4,250 via a local dealer. But the retail price on Autotrader is £5,600. So, should you sell your car for around £5,500 you’ll receive money rather than pay it out!

The rule of thumb with selling a financed car is to not take risks. Ensure you have a valid settlement letter. Ensure the money being used to pay the car off is cleared. Ensure you have a letter from the finance company stating they have no further interest in the vehicle and that you are the rightful and legal owner.

Used Car Guy

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