Why checking a vehicle for outstanding finance has never been so important

Last week the vehicle manufacturer trade body the SMMT announced that the UK used car market grew by 11.5% in 2021.  There were over 7.5 million transactions in 2021 (vehicles being bought or sold).

With so many cars changing hands it has never been more important to check a vehicle to see if it has an outstanding finance agreement registered against it.  Below we provide a Q&A to help you understand why this is the case and some top tips to ensure you are taking the necessary measures to protect yourself.  Total Car Check’s Gold check, which provides a £30,000 data guarantee, will flag where a car holds outstanding finance.

What is outstanding finance?

Outstanding finance is where a vehicle is subject to a secured motor finance loan with a lender and all the repayments have not yet been made.  In this situation the vehicle will be owned by the lender.  More information on finance agreements are provided on the Finance & Leasing Association’s Financing Your Car website.

What happens if I buy a vehicle with outstanding finance?

The vehicle is legally owned by the lender and they have the right to repossess it from you.  This could mean you end up losing the vehicle and the funds you paid the seller.

The Hire Purchase Act 1964 does protect consumers that are genuine ‘Innocent Private Purchasers’ (IPP) who have purchased a motor vehicle ‘in good faith’.  But there are several conditions that you would need to meet to be classed as an IPP.  This claim can be challenged by lenders and you would most likely be required to submit answers to a questionnaire and provide evidence to demonstrate your innocence.  The vehicle may be brought back into the possession of the lender whilst this process is being undertaken and you may be required to go to a court hearing.

Why is it so important to check finance in the current market?

It is important to ensure a finance check is undertaken at all times.  But in the current market many people who have bought a vehicle on finance are looking to sell earlier because unusually prices have increased significantly over the last year.  This means that most people purchasing a car over this period, using finance or not, have equity in the vehicle (it is worth more than it was when they bought it).  When a vehicle with outstanding finance is sold the seller should obtain consent from the lender and ensure that any outstanding finance is settled.  This does not always happen, and there is greater risk currently with a higher volume of sales occurring in the market.

Our top tips when buying a vehicle

  1. Outstanding finance check – buy a vehicle check that includes outstanding finance, such as Total Car Check’s Gold check.  Downloading our app allows you to store your checks in your phone so you can access the reports when you view vehicles (download on Google Play and the Apple Store).
  2. VIN number matching – when viewing the vehicle check the VIN showing on the vehicle, vehicle check report and V5C registration document (request that the seller providers this to you or a copy) all match.  A modern vehicle will normally provide the VIN number in three locations:
    • Engine bay – stamped into the chassis of the vehicle.
    • Door opening – usually provided on a sticker in the passenger or driver door opening.
    • Windscreen – viewable at the bottom of the windscreen. This ensures the vehicle has not been cloned e.g. a different vehicle registration plate has been applied to mask a stolen vehicle.
  3. Price – make sure the vehicle is not being sold too cheaply – if it is priced below market value then it is likely to be too good to be true.  It would also be difficult for you to prove yourself as an ‘Innocent Private Purchaser’.
  4. Condition – check the tyres and general condition of the vehicle to ensure it is as advertised.
  5. Deposit – never provide an up-front holding deposit before viewing a vehicle, only pay once you have checked the vehicle and you have access to the key(s).

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