You can sell a car even if you have outstanding finance. Thousands of people do it in the UK and it’s easier than you think. So if you need some extra cash or are looking to move into a new car then we set out the steps for selling a financed car below.
- Understanding your finance product
- Get a valuation
- Establish your equity position
Understanding your finance product
First things first. When you sell a car that has outstanding finance you have to ensure you fulfil the terms of the finance agreement. For the majority of car finance products this means paying off – or ‘settling’ – the outstanding finance balance, including any charges you owe. If you don’t do this then you could be committing fraud! But don’t fear, there are many businesses out there that can help you sell, clear the finance and even find a new car if you need one.
Broadly there are three main ways to fund vehicle usage in the UK. Make sure you know which one applies to your car:
All secured finance products allow you to settle your agreement early e.g. pay off your finance before the end of the term. This includes all forms of dealer or broker arranged motor finance including Hire Purchase, Conditional Sale and Personal Contract Purchase. There shouldn’t be any charges, but check your finance agreement and if you haven’t got it to hand then login to your online account or call your lender first to check. The lender owns the car under a secured finance agreement until you’ve settled the finance. So you can’t sell until you’ve paid off the loan.
If you bought your car using a personal loan, e.g. where a bank or lender provided you with cash for you to spend, then you will own the car from the start. You just need to make sure you either settle the loan or keep paying the monthly payments if you wish to sell it.
If you have a lease car on a Personal Contract Hire (PCH) agreement then this is a different story. PCH gives you no rights to own and therefore sell the car. You must always return it to the leasing company (formally known as the ‘lessor’). Also if you want to end the agreement early you will have to pay charges and these can be quite significant. Unfortunately this is where your selling journey ends. Selling is not an option.
Get a valuation
Once you have established you can sell then get an idea of what the market value of your car is. Unless you are having major problems with your motor or are very keen to buy another you should make sure you are in positive equity. What is positive equity I hear you say? It’s where the car is worth more than the outstanding finance amount due to the lender. It gives you surplus funds to do what you want with after selling.
Establish your equity position
All lenders these days provide online accounts which you can access to establish your outstanding finance or loan balance. In the first instance, login online and have a glance at what is left to pay. Then to get an idea of your equity position it’s a basic sum:
Consider your options for selling a car
So you’ve decided that selling is a good idea. But what route do you take to sell and how do you ensure the outstanding finance is cleared?
Get a finance settlement figure
Make sure you call your finance company and ask them for a settlement figure. This is free to request and should result in the lender sending you a letter in the post with the total amount you owe. It is important that you do this because if you pay the loan off early then it may mean you get some of the interest rebated, lowering the settlement amount. It also gives you an opportunity to tell the lender you’re looking to sell the vehicle.
You will then typically have a month or less to sell the vehicle before the settlement figure changes again. This will help you better understand your financial position. Contacting the lender yourself also avoids any problems with third party buyers trying to obtain this information on your behalf, as you will typically need to give them permission to access this information with the lender anyway.
We explain your options for selling below:
1. Online car buyers
There are several online car buyers out there that make selling a car easy. You plug in the vehicle registration, they give you a valuation and you either take the car to a local depot, or a dealer or transport company comes and picks it up. You then handover the keys and get paid, assuming you are in positive equity. It’s a great option if you don’t have much time on your hands, because aside from providing some details online there is very little effort involved.
Our recommendation is using Motorway. They do tend to achieve the best prices for cars thanks to their innovative dealer auction platform. This enables dealers to easily find your vehicle and offer competing bids against other dealers across the UK. You also don’t even need to leave your home as the car will be picked up for you. Motorway and other online car buyers get in touch with your lender and settle the finance for you, so long as you provide them with your settlement figure. They, or the purchasing dealer, then pays you the difference.
There are several direct to consumer brokers that can sell your car for you, settle your finance, help you find a new vehicle and even arrange a new finance agreement. After an initial online submission you would normally get a call from an adviser who will take you through the process. If you are buying a new car then you will need to find one online and (we recommend) view and test drive it. The only issue with selling through a broker is that you may not get the best price for your car, so make sure you compare the offer against a private sale valuation.
3. Private sale
A private sale is where you sell your car to a private buyer by advertising online or locally. You can achieve a good sales price, but you will need to manage the sale by listing the car, arranging viewings and administration associated with the sale. As you are selling mostly to individuals your target audience is limited. There are some free advertising platforms out there such as Facebook Marketplace, but you may find you need to pay to advertise in order to get results. Once you get paid it will also be your responsibility to settle the finance by paying your lender.
4. Part exchange with a dealer
The easy way to sell your car when buying a new one. Dealers will settle your finance after you provide them with your settlement figure, and this may determine the deal you get offered for your new car. It’s convenient, but dealers will often not give you as much for your old car compared to the alternative selling options above.