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What happens if I sell a car with outstanding finance?

cinch explains the Dos and Don'ts when it comes to selling a car which still has outstanding finance

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Can I sell a car with outstanding finance?

Let’s start with the good news: you can. If you want to sell a car with outstanding personal contract purchase (PCP) or hire purchase (HP) finance, there are ways to do it. But there is less good news: compared with the much more streamlined process of selling a car that you own outright, there are a few hoops to jump through. Thankfully it’s not that tricky, as our guide here will explain. Follow our steps and you can shift your motor and close the contract.

How do I sell a financed car? The basics

1.     Firstly, you must get in touch with your finance provider and let them know you want to sell the car. They’re still legally the owner, after all, so you’ll need their permissions.

2.     Ask for a settlement figure. If you own more than 50% of the car already (because you’ve paid off more than half of the original agreement), you can normally hand the car back and have the contract closed.

3.     If you’ve not yet paid off 50% of the original agreement value, speak to your provider. You can normally hand the vehicle back for them to sell on, they will credit that back against the amount you need to pay, and then you carry on making your monthly payments until you have paid back 50% of the total agreement. The sooner you hand it back, the higher the car is likely to be valued, but bear in mind that this may you are making payments for a car you don’t have the benefit of using.

Can I get money back if I sell my financed car?

It is possible, yes. The first way is if you buy the car outright, and then sell it on (as the outright owner you could now choose where to sell it) for a price that exceeds the value you spent on it. This isn’t always possible, although a well-looked after car can sometimes fetch a surprisingly handsome sum on the used market, especially if it’s a desirable model.

If you can’t afford to buy the car outright, you can take out a loan to raise the funds. But while this will enable you to sell the car as the outright owner, and potentially receive more than you paid for it, you will of course be in debt to the loan lender. If your monthly rates are lower than your HP/PCP agreement, this may be a desirable route – but you’ll still be tied into a contract that you owe money to.

Can I part-exchange my financed car?

If you’re looking to replace a financed car with something else, you can part-exchange a financed vehicle. The process is similar to that of selling the car, as we outlined below.

1.     First, you must inform the finance company that you would like to sell your car. They still own the car as part of the agreement, of course.

2.     Request a settlement figure. Take note of it.

3.     Next, ask the company you intend to finance your next car from how much they will pay you for the car you’re trying to part-exchange.

4.     If they offer you a figure that exceeds your outstanding finance, you’ll be in so-called positive equity, the value of which can be used towards your next car. For example, if your car is valued at £10,000 and the outstanding finance is £1,000, you will have an extra £9,000 to go towards the next vehicle.

5.     Alternatively, you’ll be in negative equity, when the amount owed to the finance company is more than the sum you’ve been offered for the car. For example, your car is valued at £10,000 but you owe £10,500. You can either pay of the remining amount separately (in this example case, £500), or the company you are financing your next car off may allow you to add the sum to the PCP or HP agreement you’re negotiating.

For more information on part-exchanging a financed car, click here.

Can we change the example to value £10000, paid £9000 and outstanding finance £1000. We don’t really want to be seen to encourage customers to trade their cars in at 10% of the way through the contract. HP Agreements should be entered into with the intention of the customer taking ownership of the goods.