Don’t buy a vehicle with outstanding finance

It’s a simple but important message. Don’t buy a vehicle with outstanding finance. We give you the low down on this important aspect of vehicle buying. Purchasing a Total Car Check provides an outstanding finance check and protects you with a £30,000 finance data guarantee.

Picture of key, money

What is outstanding finance?

Over 90% of new vehicles and a high proportion of used vehicles are financed or leased. This typically means they are owned by the lender throughout the period the finance or loan provided is being repaid. The lender or leasing company has paid the dealer or manufacturer a lump sum to buy the vehicle. It then sets up a credit or hire agreement with a customer that wants to use it over a particular period (term). Outstanding finance means that not all repayments have yet been made under the finance agreement.

Why do different types of finance agreement matter?

There are two main types of finance agreement which affects whether you own the vehicle or not. Using unsecured finance such as a personal loan or credit card to buy a vehicle will mean you own it from day one. Using secured finance such as Hire Purchase or Personal Contract Purchase means the lender owns the vehicle throughout the term until all payments have been made. The vast majority of finance used to buy cars these days is secured. All leasing agreements such as Contract Hire and Finance Leases are also secured against the vehicle and will always be owned by the lessor.

Why does outstanding finance pose a risk to vehicle buyers?

If you go to buy a vehicle with outstanding finance then the person selling it has not yet settled the secured finance sum it owes. This means the seller does not own the vehicle and has no legal right to sell it. Leased vehicles never provide an option for the lessee (the user of the vehicle) to own it. The vehicle must always be handed back to the leasing company. So buying a vehicle with outstanding finance leads to the owner of the vehicle (the lender or lessor) finding it and repossessing it.

What happens if I buy a vehicle with outstanding finance?

You will likely receive a letter from the lender’s repossession agent demanding you to release the vehicle to them. You will potentially lose the vehicle and the funds you paid the seller.

Vehicle being repossessed onto a recovery truck

Am I not protected by law if I buy a financed vehicle?

In some cases yes. There is protection for ‘Innocent Private Purchasers’ such as if you purchased a vehicle from a dealership. We set out here what you should expect from dealers if buying a vehicle on finance.

But when buying from a private seller there are several conditions you would need to meet to prove your innocence. The lender will often seek to recover its vehicle first and then you would need to prove your innocence (often in court) to have a claim in keeping the vehicle.

Would the person that sold me the vehicle be committing fraud?

Yes they would. Selling a vehicle without owning it is known as conversion fraud. Most privately sold vehicles are advertised online. That’s why it is so important that you conduct an outstanding finance check before you buy.

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