Outstanding car finance

Checking car history before buying

More than two-thirds of new and nearly new cars on the road today are bought on finance. That includes Personal Contract Purchase, Hire Purchase or Lease Purchase.

Protect your money and get an outstanding car finance check

Regardless of the type of finance outstanding, a car cannot be legally sold until the debt is paid off.

Outstanding finance is a car that belongs to the lending company and not the driver or registered keeper, even if only a few hundred pounds are owing.

PCP and Hire Purchase deals are secured against the vehicle. Until a loan is settled, the car cannot be sold.

If you are buying from a dealer, the circumstances are a bit different. Stocking loans are lending facilities for dealers to buy new stock. When a car is sold off the forecourt, the dealer pays off the stocking loan, and the finance is cleared.

A private buy with finance outstanding checked

Here are the exact steps you need to follow when buying a car privately that you think has outstanding finance.  

• Get a free car check from a firm like CarVeto or HPI Check. You will need the details provided in the report to see if the car has money owing. A good car history check will offer valuable bits of information such as the lending company, finance type (PCP etc.), agreement number and contact details.
• Do not rely on a car history check provided by the seller. The report may be months or even years old with inaccurate information.
• At the very least, run the car through the DVLA database to check basic car performance info, MOT history and current road tax status.

What to do if the car is on finance

Contact the finance company, state you plan to buy the car and need a settlement figure.
Follow the directions provided by the finance house.

Most often, the lender will insist that the finance be paid in full, preferably by the registered keeper (or individual named in the finance agreement).

The lender may be happy for you to settle the finance and pay the remainder to the seller. It will depend on the discretion of the lender.

Negative Equity car finance check

The exact definition is that the car’s market value (or selling price) is less than the amount owed against it.

A typical example is a selling price of £5,000 but an outstanding finance balance of £6,000.

In this instance, the lender must be paid the full £6,000. As you only pay £5,000 for the vehicle, the seller needs to pay the additional £1,000.

Recap

• Obtain a settlement figure using the information provided in the car finance check.
• Get instructions from the lender on how best to buy the car, i.e. the seller or paying off the debt.
• You pay the seller the difference between the money owed and the value of the car.
• If negative equity car finance occurs, then the seller must pay the difference.

Get a settlement letter

Whether you or the seller pay off the finance, it is crucial to obtain a settlement letter from the finance company that details the vehicle and no further interest.

Get a settlement letter in all cases as the legal document that keeps all parties safe and law-abiding. See the Financial Ombudsman for details.

If you have already bought a car and later found it was on finance, contact the Citizens Advice Bureau immediately for support. Ensure you have the sellers name and address, and vehicle details.