In most cases, it is illegal to sell a car that still has outstanding finance on it in the UK.
This guide explains why. We cover the rules for owning a car, how to sell a financed car legally, and what to do if you can’t make your monthly payments.
What is outstanding finance?
If your car has outstanding finance, it means you still owe money on your car loan. Put simply, your loan or car finance agreement has not ended, so the car is not fully paid off. In these cases, you are not the owner of the car.
This is common with UK car finance agreements, including:
- Hire Purchase (HP)
- Personal Contract Purchase (PCP)
- Lease/Personal Contract Hire (PCH)
If any part of the agreement is unpaid, the car is classed as having outstanding finance.
To learn more about the types of car finance, read how car finance works in the UK.
Who owns the car on finance?
In the UK, you cannot sell a car if you don’t own it. Car ownership depends on the type of finance you have.
Here’s how ownership works:
HP and PCP The finance company owns the car until you make the final payment (or pay a ‘balloon payment’ in PCP). Until then, you are the registered keeper, not the legal owner.
Lease (Personal Contract Hire/ PCH) The finance company owns the car for the whole agreement. You cannot buy or sell the car at any point.
Personal loan You own the car from the day you buy it because the loan is separate from the vehicle. You can sell the car, but you must still repay the loan.
If you don’t know who owns your car or what type of agreement you have, check your finance documents or ask your lender directly.
Why is it illegal to sell a car with outstanding finance?
It is illegal to sell a car with outstanding finance in the UK because you do not legally own the car until all payments are complete.
Selling a car you do not legally own is seen as fraud.
It can also cause problems such as:
- The buyer losing the car
- The finance company taking the car back
- Damage to your credit record
- Possible legal action
However, you can legally sell the car once the finance has been settled.
How to sell a car with outstanding finance
You can only sell a car with outstanding finance after you pay off the remaining balance. Here are the steps most people follow:
- Ask your finance company for a settlement figure. This is the exact amount needed to clear the finance agreement.
- Pay the settlement figure. Once you pay this amount, the agreement ends and the car becomes yours.
- Get written confirmation. Your lender should confirm that:
- The balance is £0
- The finance agreement is closed
- Car ownership has transferred to you
- Sell the car. Now that the finance is settled, you are the legal owner and can sell the vehicle.
What happens if you buy a car with outstanding finance?
If you buy a car that still has outstanding finance, the finance company may take it back. This is because the seller did not legally own the car and had no right to sell it.
You may also:
- Lose the car
- Lose the money you paid
- Need legal advice to recover your costs
To avoid this, always check the car’s history before buying. Finance checks are common in the UK and help you avoid these risks.
What if I can’t afford my car finance payments?
If you cannot afford your car finance payments, contact your finance company as soon as possible. Speaking early gives you more options and helps prevent bigger problems later.
Your lender may be able to:
- Move your payment date
- Offer a temporary reduced payment plan
- Give you a short payment pause
- Explain voluntary termination (returning the car after paying a set amount)
If payments continue to be missed, the lender may:
- Add extra fees
- Mark missed payments on your credit file
- Begin recovery action for the car
Your lender can explain what options are available under your agreement.
Other legal requirements
To legally drive in the UK, you must also have:
- Car insurance
- A valid MOT
- Vehicle tax
- A valid driving licence
You can drive in the UK with a non-UK licence for 12 months. After that, you may need to exchange your licence or get a UK one.
At Marshmallow, we help drivers who are new to the UK save on their car insurance. We accept licences and driving history from anywhere.
Get a quick quote today to see what you could save.
