As we explained in our guide Can I Scrap a Car on HP? it is illegal to knowingly sell a vehicle that has an outstanding finance agreement. This means that if you have a car on finance and you wish to sell it, you need to ensure that the finance is settled first.
Although it is illegal to sell a vehicle that you know is subject to a finance agreement, that doesn’t necessarily mean that you can go to prison for it.
Avoid committing fraud
The only reason you could go to prison for selling a car that is on a finance agreement, is if it can be proved that it was your intention to defraud the insurance company. Unless this is the case, then selling a car that has outstanding finance is a civil matter.
This means that it would be dealt with in court should the finance company decide to sue you for the outstanding balance due on the car. The chances are that you will be ordered to pay the finance company back via installments, perhaps with an added fine on top. You will not however face a custodial sentence.
There are many instances whereby a person has bought a car with outstanding finance that they were not aware of, only to sell it to someone else who has then been pursued for the outstanding finance on the car. In this instance you would be highly likely to receive a visit from the police, but if you could prove that you sold the car in good faith without knowing that there was money owed to the finance company, then you probably won’t receive any form of punishment.
This is because the initial crime has been committed by the previous owner of the car, who knowingly sold it with an unsettled finance agreement still in place.
HPI Checks are a must
Although not a legal requirement when purchasing a used car, it is highly recommended to perform an HPI check on any car that you wish to purchase.
An HPI check will determine whether there is any outstanding finance on the car, so you are aware before purchasing it. If the car does in fact have outstanding finance, then you can either walk away from the deal or request that the seller settles the finance on the car prior to selling it to you.
If you are ever contacted about a car that you have sold with outstanding finance that you were not aware of, then the first thing to do is make a few phone calls to your insurer, the finance company and the DVLA.
Often there is a communication breakdown between these parties which means that the finance could have been settled but the correct party not informed.
In either case the fact that there is outstanding finance on a car that you bought and were not aware of isn’t really your problem as it’s the problem of the person who sold the car to you. It is however your responsibility to ensure that the ownership of the vehicle has been transferred correctly.