Are you thinking about selling your car, but it is still on finance? If so, read this!

First and foremost, it is really important to understand that you must clear any outstanding finance on the vehicle with your finance company before you can legally sell it. You absolutely, 100% cannot sell a car with outstanding finance before clearing or managing the outstanding finance with your lender!

This blog aims to guide you through the various types of finance agreements, the options available to you for managing outstanding finance, and the steps to take for a legal and smooth sale.

Legal Considerations

Before diving into the specifics of different finance agreements and how they can impact the sale of a car, it is important to highlight the legal aspect (again). Selling a car with outstanding finance without informing the lender and clearing or settling your finance agreement is illegal because they still own the vehicle.

Types of Finance Agreements

For all of Ozoomi's vehicle finance options (Hire Purchase, Personal Contract Purchase and Conditional Sale), the lender holds legal ownership of the vehicle while you, the borrower, are recognised as the registered keeper during the repayment period. For more information about what these terms mean, check out our article which explains the difference between the legal owner and registered keeper of a vehicle.

So, let’s dive into your obligations and options under your specific finance agreement.

Ozoomi offers three primary vehicle finance options, each with distinct terms for ownership transfer and repayment plans:

• Hire Purchase (HP): This arrangement allows you to pay for the car over a set loan period. Once you complete all the payments along with a minimal 'option to purchase' fee, you gain legal ownership of the vehicle, transitioning from the registered keeper to the owner.

• Personal Contract Purchase (PCP): PCP gives you flexibility at the end of the agreement. You can choose to pay a final ‘balloon payment’ to purchase the car outright, hand the vehicle back, or enter into a new finance agreement for a different car.
• Conditional Sale (CS): Similar to HP, you make regular payments until the full cost of the vehicle is covered, at which point legal ownership automatically transfers to you.

Managing Outstanding Finance

1. Contact Your Lender

The first step is to inform your lender of your intention to sell the vehicle. They will then provide you with an early settlement figure. This amount represents the total amount you need to pay to clear your finance agreement ahead of schedule. More information about partial and early settlement options can be found here in our article.

For example, if you've financed your car with a Total Amount Payable amount of £20,000 and you've paid £17,000 so far, your early settlement figure might include the remaining £3,000 plus any applicable fees for ending the agreement early.

2. Evaluate Your Vehicle's Value

It's really important to know the current market value of your car. You can do this by asking a dealer for a valuation, going online to free car valuations sites such as AutoTrader, Motorway and Money4YourMotors.  This helps in determining if selling your car is financially feasible, especially if you find yourself in negative equity. Negative equity occurs when the amount you owe on the finance agreement exceeds the value of the car. We have a whole blog post about negative equity here!

For example, if your car is currently worth £8,000 on the market but your outstanding finance (including the early settlement figure) is £10,000, you're in negative equity by £2,000. This means if you sell the car, you'll need to find an additional £2,000 to clear your finance.

3. Clearing the Finance

Deciding to go ahead with the sale means you'll need to settle any outstanding finance. This might involve using the proceeds from the sale to pay off the finance agreement. If the sale doesn't cover the full amount, you'll need to settle the remaining balance through other financial means, such as savings or a loan. This step is essential so that your lender can remove their legal interest in your vehicle and the sale can proceed legally.

4. Informing Potential Buyers

Be honest when you’re selling a financed car. Whatever means you use to sell your car (again, after discussing it with your lender!), you must inform any potential buyer about the vehicle's finance status and your plans to clear it before completing the sale. This transparency makes sure that all parties are aware of the situation and can make informed decisions.

5. Finalising the Sale

Only once you have the finance cleared and your lender's explicit consent, are you in a position to legally transfer the vehicle's ownership to the new buyer. This involves:

• Signing over the V5C document to the new owner, informing the DVLA of the change in ownership

• Providing the buyer with any relevant documentation, such as service history and MOT certificates.

Option for Voluntary Termination

In some circumstances, if selling your car doesn’t seem financially feasible, especially when in significant negative equity, you might consider the option of voluntary termination.To understand more, read our easy-to-digest blog about the ins and outs of voluntary termination.

This legal right, under Section 99 of the Consumer Credit Act 1974, allows car finance customers to end their finance agreement early if certain conditions are met. It is typically available when you’ve repaid 50% of the total amount payable on your finance agreement, allowing you to return the vehicle to the lender without any penalty.

Voluntary Termination is a useful option if settling the early settlement figure or covering the negative equity is beyond your financial reach. Remember, this requires careful consideration of your finance agreement terms and a clear discussion with your lender.

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