According to a recent study, over 85% of new private cars purchased in the UK between April 2016 and April 2017 were purchased on finance. If you wish to sell your car and it is still on finance, then there is a process that will need to be followed to make sure that you sell your car correctly and lawfully. Remember it is illegal to knowingly sell a vehicle that has an outstanding finance agreement.
There are several types of car finance, and the selling process will largely depend on how your car was purchased. If you financed your car using a personal bank loan, then the below process won’t apply as you will already be the legal owner of your car. However, it’s worth remembering that even if you sell your car you will still be liable for the monthly personal loan payments – something to consider especially if you’re planning to finance another car.
Although you cannot lawfully knowingly sell a car that has outstanding finance, that doesn’t mean that you can’t sell your car if your purchased it with the help of finance.
If you own a car that is on finance, then you can think of it in the same way as a house with a mortgage. Although your name is on all of the paperwork for the car, it is actually owned by the finance company until you have complete the finance agreement by making all of the payments for it.
So in order to sell a car on finance you will need to pay off the outstanding finance amount in full so that you can become the legal owner. This doesn’t necessarily mean that you have to scrape the money together to buy your car before you sell it, as fortunately there are ways to pay of the outstanding balance at the same time that the car is sold.
If the value of your car doesn’t cover the remaining balance on the finance agreement, then you will need to use your own money to cover the shortfall. If this is the case, don’t worry as this is known as negative equity and is quite common due to the rate at which car values deteriorate. With longer finance agreements of 48 months or more, it is more and more likely that this is going to be the case.
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Step 1: Obtain Settlement Figure
When it comes to selling your car on finance, the first thing that you need to do is contact the finance company and advise them that you intend to sell the car. They will offer you a settlement figure, which is the total amount outstanding on the finance, and send you a copy in the post. The settlement figure is usually valid for around 30 days, and includes any early settlement fees or interest payable. These will have been stated in the terms of the contract that you signed when you first took out the finance on your car.
Step 2: Get an up-to-date valuation
As mentioned previously you’ll need to clear the outstanding finance (the amount of the settlement figure) before selling your car. This will help you to determine whether the proceeds of the sale will be enough to pay off the existing finance or whether there will be a shortfall that you will need to cover personally. There are several websites out there which will value your car for you. It’s worth noting that if your car has any dents or scratches then you can expect to deduct as much as £1,000 from any online valuation of your car.
If the valuation of your car is higher than the outstanding finance, then it will be easy to sell your car. You will even have a cash surplus once the sale has completed. However, if the valuation is lower then this means that there will be a shortfall that you will need to make up.
Step 3: Prepare your Car for Sale
In order to sell your car you will need to be in receipt of a written settlement figure from your finance company. This usually has to be an original document and not an online statement, printout or copy. Once you have this, ensure you have the following paperwork to ensure you get as close to the full valuation as possible:
- Log book (otherwise known as the V5C)
- Service history – paperwork for any servicing or maintenance for the car
- MOT certificate – a copy of your car’s current MOT certificate if it is more than 3 years old
It is also necessary to have the spare key for your car in order to receive the full valuation amount. You may also find it beneficial to spend some money on getting the car valeted, as well as sorting out any minor cosmetic issues that may affect its overall value.