Can you sell a car on finance?
Written by
Joe Towner
Reviewed by
Amy LancashireYes, you can sell a car that's on finance, but how you do it depends on the type of finance. If your car is on hire purchase (HP) or Personal Contract Purchase (PCP), the finance company legally owns it until you've cleared the agreement, so you settle the finance as part of the sale rather than selling it outright. If you bought the car with an unsecured personal loan, the car is already yours and you can sell it whenever you like.
Here's how selling works for each, how to check where you stand, and how to do it legally.
Do I actually own a car that's on finance?
This totally depends on your finance type.
On HP, PCP or conditional sale, the finance company is the legal owner of the car until the agreement is paid off. You're the registered keeper, which means you're responsible for tax, insurance and running the car day to day, but you're not the legal owner. As Citizens Advice explains, with hire purchase you don't own the car until you've paid in full. That's why you can't simply sell it until the finance is cleared. If you want a refresher on how these agreements work, see our guides on how PCP works and the difference between PCP and HP.
With an unsecured personal loan, it's different. The loan isn't secured against the car, so the car is yours from the start. You can sell it at any time and simply carry on repaying the loan.
How to sell a car on HP or PCP finance
If your car is on HP or PCP, selling it is a case of clearing the finance as part of the sale. Here's how.
Get a settlement figure
Start by asking your lender for a settlement figure. This is the exact amount you'd need to pay to clear the agreement in full today. You have a legal right to request one under the Consumer Credit Act 1974, and the lender must provide it.
A settlement figure is usually valid for a set period, often around 28 days, because interest keeps building up. If it expires before you complete the sale, you just ask for an updated one, which will be slightly higher.
Check if you're in positive or negative equity
Compare the settlement figure to what the car is actually worth:
Positive equity: the car is worth more than you owe. Once the finance is cleared, the difference is yours.
Negative equity: the car is worth less than you owe. You'll need to cover the shortfall to clear the finance before the car can change hands.
Choose how to sell
There are three main routes:
Sell to a dealer or car-buying service. They deal with your lender directly, pay off the settlement figure, and pass you any equity left over. This is usually the quickest and simplest option, though not always the highest price.
Pay off the finance yourself, then sell privately. You clear the settlement figure first, take ownership, and sell the car privately. This gives you more control over when you sell and for how much, but you need the funds to settle the finance upfront.
Part-exchange it. A dealer uses the car's value to clear your existing finance and puts anything left towards your next car.
Can I sell a car on finance privately?
Yes, but you have to be careful to do it properly. Because the finance company owns the car, you can't pass ownership to a private buyer until the agreement is cleared. In practice that means either settling the finance first, then selling, or arranging for the buyer to pay the lender directly to clear the balance as part of the sale.
It isn't illegal to sell a car that's on finance, but it is illegal to sell it without settling the agreement or without telling the buyer about the outstanding finance. That can amount to fraud, and you'd still owe the finance company the balance.
There's also a risk to be aware of. Under the Hire Purchase Act 1964, a private buyer who purchases the car in good faith, without knowing about the finance, can keep it. In that situation the finance company can't take the car back from them, but they can still pursue you for what's owed. Being upfront protects everyone, including you.
Selling a car you bought with a personal loan
If you funded the car with an unsecured personal loan rather than HP or PCP, you're in a simpler position. The car is yours, so you can sell it privately or to a dealer at any time, and there's no settlement figure or finance company involved in the sale.
The one thing to remember is that the loan doesn't disappear when the car does. You still owe it, and you carry on making your repayments as normal. You can use the money from the sale to repay the loan early if you want to, though check whether an early repayment charge applies first.
What if I'm in negative equity?
Negative equity can be common in the early years of a finance agreement, when the car has lost value faster than you've paid it down. If the settlement figure is higher than the car's value, you have a few options:
Pay the shortfall. Cover the difference yourself so the finance is cleared and the sale can go ahead.
Wait. As you keep paying, the gap between what you owe and what the car is worth usually narrows.
Consider voluntary termination. You can end the agreement voluntarily at any point, but if you haven't yet paid half the total amount, you may need to pay the difference to reach that threshold.
Selling a Car on Finance FAQs
There are a range of financial products available that may suit your needs. We encourage you to research your options carefully and consider seeking independent financial advice before making any decisions. This blog is for informational purposes only and does not constitute financial advice.
